WADDELL & REED
FUNDS, INC.
Total Return Fund
Growth Fund
Science and Technology Fund
International Growth Fund
Asset Strategy Fund
Limited-Term Bond Fund
High Income Fund
Municipal Bond Fund
SEMIANNUAL
REPORT
----------------------------------------
For the six months ended September 30, 1998<PAGE>
This report is submitted for the general information of the shareholders of
Waddell & Reed Funds, Inc. It is not authorized for distribution to prospective
investors unless accompanied with or preceded by the Waddell & Reed Funds, Inc.
current prospectus.
<PAGE>
PRESIDENT'S LETTER
SEPTEMBER 30, 1998
Dear Shareholder:
As president of your Fund, I would like to thank you for your continued
confidence as an investor. From every area of Waddell & Reed, including your
personal financial advisor, our goal has been to provide the best service
possible to our shareholders.
While it is impossible to predict the future direction of the markets, there are
some basic principles that we stand by that can help investors achieve their
objectives:
. Develop a financial plan that helps you pinpoint your financial objectives,
and identify specific strategies for turning your dreams into reality. There
is no better way to plan for your future.
. Invest on a regular basis. It can be one of the best ways to invest long
term and provide a hedge against market volatility.
. Adopt a long-term view to take advantage of compounding. The key to
successful investing is time, not timing. The power of compounding is
awesome and, on a long-term basis, can overwhelm any nuances of timing.
. Review your financial plan regularly. Financial planning is an ongoing
process that requires periodic review.
Waddell & Reed is positioned to assist you as you work toward your financial
goals. We will continue to offer quality investment products and personal
service to make the financial planning and investment process convenient and
accessible to you. Our locally based financial advisors are ready to assist you
with your total financial plan to help you plan for your retirement, to help you
meet your education funding goals or to achieve other financial objectives.
We look forward to assisting you in the future. If you have any questions about
your account, wish to review your financial plan or have other financial issues
that are important to you, contact your financial advisor or your local Waddell
& Reed office.
Respectfully,
Robert L. Hechler
President
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
TOTAL RETURN FUND
PORTFOLIO STRATEGY:
Common stocks and OBJECTIVE: Current income while
securities convertible into seeking capital
common stocks. growth.
Cash Reserves STRATEGY: Invests primarily in common stocks, or
securities convertible into common
stocks, of companies that have a record
of paying regular dividends on common
stock and also have the potential for
capital appreciation.
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Total Return Fund
from time to time. For more information
about the Fund's cash reserves
flexibility, please consult the
Prospectus.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months ended September 30, 1998
(Restated to reflect the 100% stock
dividend effected June 26, 1998.)
- ----------------------------------------
NET ASSET VALUE ON
9/30/98 $11.61
3/31/98 12.24
------
CHANGE PER SHARE $(0.63)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-98 2.61% 5.61%
5-year period ended 9-30-98 15.99% 15.99%
Period from 9-21-92*
through 9-30-98 15.90% 15.90%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and reflects
payment of the applicable contingent deferred sales charge upon redemption at
the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1998, Total Return Fund had net assets totaling $445,299,024
invested in a diversified portfolio of:
61.87% Common Stocks
38.13% Cash and Cash Equivalents
As a shareholder of Total Return Fund, for every $100 you had invested on
September 30, 1998, your Fund owned:
$38.13 Cash and Cash Equivalents
34.47 Manufacturing Stocks
8.40 Finance, Insurance and Real Estate Stocks
7.35 Wholesale and Retail Trade Stocks
7.13 Transportation, Communication, Electric
and Sanitary Services Stocks
4.13 Services Stocks
0.39 Mining Stocks
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 0.52%
Gap, Inc. (The) ........................ 44,300 $ 2,336,825
Building Materials and Garden Supplies - 0.62%
Home Depot, Inc. (The) ................. 69,600 2,749,200
Chemicals and Allied Products - 12.68%
Air Products and Chemicals, Inc. ....... 71,800 2,136,050
Colgate-Palmolive Company .............. 40,100 2,746,850
du Pont (E.I.) de Nemours and Company .. 79,000 4,433,875
Gillette Company (The) ................. 82,050 3,138,412
Lilly (Eli) and Company ................ 74,000 5,795,125
Merck & Co., Inc. ...................... 20,400 2,643,075
Monsanto Company ....................... 131,800 7,430,225
Novartis, AG (A) ....................... 2,700 4,329,287
PPG Industries, Inc. ................... 34,500 1,882,406
Pfizer Inc. ............................ 58,500 6,197,344
Procter & Gamble Company (The) ......... 39,600 2,809,125
Warner-Lambert Company ................. 171,300 12,933,150
Total ................................. 56,474,924
Communication - 3.75%
AirTouch Communications* ............... 56,000 3,192,000
Clear Channel Communications, Inc.* .... 50,800 2,413,000
Cox Communications, Inc., Class A* ..... 104,100 5,686,462
MCI WORLDCOM, Inc.* .................... 64,000 3,130,000
SBC Communications Inc. ................ 50,800 2,257,425
Total ................................. 16,678,887
Depository Institutions - 2.40%
BankAmerica Corporation ................ 27,200 1,635,400
Chase Manhattan Corporation (The) ...... 61,000 2,638,250
Citicorp ............................... 15,100 1,403,356
Norwest Corporation .................... 57,800 2,069,962
U. S. Bancorp. ......................... 82,800 2,944,575
Total ................................. 10,691,543
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS (Continued)
Electric, Gas and Sanitary Services - 1.93%
Duke Energy Corp. ...................... 78,300 $ 5,182,481
Republic Services, Inc., Class A* ...... 175,500 3,422,250
Total ................................. 8,604,731
Electronic and Other Electric Equipment - 5.21%
General Electric Company ............... 103,100 8,202,894
General Instrument Corporation* ........ 141,400 3,057,775
Intel Corporation ...................... 75,600 6,485,063
Maytag Corporation ..................... 64,700 3,089,425
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 128,700 2,368,884
Total ................................. 23,204,041
Food and Kindred Products - 1.70%
Bestfoods .............................. 86,200 4,175,313
Coca-Cola Company (The) ................ 34,500 1,988,062
Panamerican Beverages Inc., Class A .... 78,400 1,396,500
Total ................................. 7,559,875
Food Stores - 2.57%
Kroger Co. (The)* ...................... 110,400 5,520,000
Safeway Inc.* .......................... 128,000 5,936,000
Total ................................. 11,456,000
Furniture and Fixtures - 0.41%
Lear Corporation* ...................... 41,500 1,815,625
General Merchandise Stores - 2.38%
Dayton Hudson Corporation .............. 103,000 3,682,250
Wal-Mart Stores, Inc. .................. 126,200 6,893,675
Total ................................. 10,575,925
Health Services - 0.98%
Tenet Healthcare Corporation* .......... 151,500 4,355,625
Industrial Machinery and Equipment - 3.70%
Baker Hughes Incorporated .............. 95,100 1,991,157
Case Corporation ....................... 62,200 1,352,850
Caterpillar Inc. ....................... 31,700 1,412,631
Cisco Systems, Inc.* ................... 88,800 5,491,725
Deere & Company ........................ 61,000 1,845,250
International Business Machines Corporation 34,200 4,377,600
Total ................................. 16,471,213
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS (Continued)
Instruments and Related Products - 2.48%
General Motors Corporation, Class H .... 40,900 $ 1,505,631
Guidant Corporation .................... 71,400 5,301,450
Medtronic, Inc. ........................ 48,600 2,812,725
Raytheon Company, Class A .............. 27,599 1,429,973
Total ................................. 11,049,779
Insurance Carriers - 1.66%
American International Group, Inc. ..... 58,800 4,527,600
MGIC Investment Corporation ............ 77,400 2,854,125
Total ................................. 7,381,725
Miscellaneous Manufacturing Industries - 0.40%
Tyco International Ltd. ................ 32,000 1,768,000
Miscellaneous Retail - 0.52%
Costco Companies, Inc.* ................ 48,500 2,297,688
Motion Pictures - 0.92%
Time Warner Incorporated ............... 31,700 2,775,731
Walt Disney Company (The) .............. 52,200 1,321,313
Total ................................. 4,097,044
Nondepository Institutions - 4.34%
Associates First Capital Corporation,
Class A ............................... 47,521 3,100,745
Fannie Mae ............................. 102,600 6,592,050
Freddie Mac ............................ 159,200 7,870,450
Household International, Inc. .......... 47,400 1,777,500
Total ................................. 19,340,745
Oil and Gas Extraction - 0.39%
Schlumberger Limited ................... 34,800 1,750,875
Paper and Allied Products - 0.93%
Champion International Corporation ..... 30,700 961,294
International Paper Company ............ 35,400 1,650,525
Willamette Industries, Inc. ............ 52,800 1,514,700
Total ................................. 4,126,519
Petroleum and Coal Products - 3.00%
British Petroleum Company p.l.c.
(The), ADR ............................ 24,800 2,163,800
Chevron Corporation .................... 28,500 2,395,781
Exxon Corporation ...................... 31,200 2,189,850
Mobil Corporation ...................... 45,200 3,432,375
Royal Dutch Petroleum Company .......... 66,400 3,162,300
Total ................................. 13,344,106
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS (Continued)
Prepackaged Software - 2.23%
BMC Software, Inc.* .................... 67,800 $ 4,070,119
Microsoft Corporation* ................. 53,200 5,856,987
Total ................................. 9,927,106
Primary Metal Industries - 0.57%
Aluminum Company of America ............ 35,900 2,548,900
Railroad Transportation - 0.43%
Burlington Northern Santa Fe Corporation 59,700 1,910,400
Rubber and Miscellaneous Plastics Products - 0.21%
Goodyear Tire & Rubber Company (The) ... 18,100 929,888
Transportation By Air - 1.02%
AMR Corporation* ....................... 44,200 2,450,338
Delta Air Lines, Inc. .................. 21,700 2,110,325
Total ................................. 4,560,663
Transportation Equipment - 3.18%
Chrysler Corporation ................... 73,300 3,509,238
Dana Corporation ....................... 42,000 1,567,125
Ford Motor Company ..................... 63,800 2,994,612
General Motors Corporation ............. 49,400 2,701,563
Northrop Grumman Corporation ........... 46,700 3,409,100
Total ................................. 14,181,638
Wholesale Trade - Durable Goods - 0.74%
Lockheed Martin Corporation ............ 32,900 3,316,731
TOTAL COMMON STOCKS - 61.87% $275,506,221
(Cost: $180,498,943)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 1.66%
Pfizer Inc.,
5.5%, 10-20-98 ........................ $ 7,400 $ 7,378,519
Communication - 1.77%
GTE Corporation,
5.55%, 10-8-98 ........................ 7,900 7,891,475
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Electric, Gas and Sanitary Services - 9.92%
Carolina Power & Light Co.:
5.5%, 10-23-98 ........................ $ 6,700 $ 6,677,481
5.46%, 11-9-98 ........................ 17,700 17,595,304
Houston Industries FinanceCo L.P. (Houston
Industries Incorporated, guarantor),
5.67%, 10-30-98 ....................... 17,000 16,922,352
PacifiCorp,
5.52%, 10-16-98 ....................... 3,000 2,993,100
Total ................................. 44,188,237
Electronic and Other Electric Equipment - 6.20%
Lucent Technologies Inc.,
5.25%, 10-22-98 ....................... 9,800 9,769,988
Sony Capital Corp.,
5.28%, 11-6-98 ........................ 17,935 17,840,303
Total ................................. 27,610,291
Fabricated Metal Products - 0.83%
Danaher Corporation,
5.3438%, Master Note .................. 3,711 3,711,000
Food and Kindred Products - 3.79%
Anheuser-Busch,
5.5%, 10-19-98 ........................ 9,200 9,174,700
General Mills, Inc.,
5.1988%, Master Note .................. 3,718 3,718,000
Hercules Inc.,
5.82%, 10-23-98 ....................... 4,000 3,985,773
Total ................................. 16,878,473
Insurance Carriers - 2.24%
USAA Capital Corp.,
5.5%, 10-28-98 ........................ 10,000 9,958,750
Nondepository Institutions - 1.41%
General Motors Acceptance Corporation,
5.48%, 10-14-98 ....................... 6,300 6,287,533
Paper and Allied Products - 2.24%
Westvaco Corp.,
5.26%, 11-4-98 ........................ 10,000 9,950,322
Textile Mill Products - 0.54%
Sara Lee Corporation,
5.1938%, Master Note .................. 2,416 2,416,000
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Transportation Equipment - 4.80%
Dana Credit Corp.,
5.7%, 10-14-98 ........................ $ 9,350 $ 9,330,755
Echlin Inc.:
5.7%, 10-15-98 ........................ 1,680 1,676,276
5.72%, 10-15-98 ....................... 10,380 10,356,910
Total ................................. 21,363,941
Total Commercial Paper - 35.40% 157,634,541
Commercial Paper (backed by irrevocable bank
letter of credit) - 2.22%
Depository Institutions
Western Financial Bank FSB (Federal Home
Loan Bank of San Francisco),
5.55%, 10-2-98 ........................ 9,900 9,898,474
TOTAL SHORT-TERM SECURITIES - 37.62% $167,533,015
(Cost: $167,533,015)
TOTAL INVESTMENT SECURITIES - 99.49% $443,039,236
(Cost: $348,031,958)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.51% 2,259,788
NET ASSETS - 100.00% $445,299,024
See Notes to Schedules of Investments on page 59.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
GROWTH FUND
PORTFOLIO STRATEGY:
Common stocks and OBJECTIVE: Capital appreciation.
securities convertible
into common stocks.
Cash Reserves STRATEGY: Invests primarily in common stocks, or
securities convertible into common
stocks, of companies that offer above-
average growth potential, including
relatively new or unseasoned companies.
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Growth Fund from
time to time. For more information
about the Fund's cash reserves
flexibility, please consult the
Prospectus.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months Ended September 30, 1998
(Restated to reflect the 100% stock
dividend effected June 26, 1998.)
- -------------------------------------------
NET ASSET VALUE ON
9/30/98 $13.12
3/31/98 14.29
------
CHANGE PER SHARE $(1.17)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
----------------------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-98 10.32% 13.32%
5-year period ended 9-30-98 16.34% 16.34%
Period from 9-21-92*
through 9-30-98 20.27% 20.27%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1998, Growth Fund had net assets totaling $305,349,740 invested
in a diversified portfolio of:
72.24% Common Stocks
27.76% Cash and Cash Equivalents
As a shareholder of Growth Fund, for every $100 you had invested on September
30, 1998, your Fund owned:
$39.44 Services Stocks
27.76 Cash and Cash Equivalents
12.97 Manufacturing Stocks
11.09 Transportation, Communication, Electric
and Sanitary Services Stocks
7.42 Wholesale and Retail Trade Stocks
1.32 Finance, Insurance and Real Estate Stocks
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS
Automotive Dealers and Service Stations - 2.72%
O'Reilly Automotive, Inc.* ............. 230,000 $ 8,308,750
Business Services - 15.22%
America Online, Inc.* .................. 130,000 14,462,500
CKS Group, Inc.* ....................... 200,000 3,500,000
ENVOY Corporation* ..................... 250,000 5,406,250
FactSet Research Systems, Inc.* ........ 150,000 4,753,125
FORE Systems, Inc.* .................... 200,000 3,325,000
Getty Images, Inc.* .................... 150,000 2,559,375
Parametric Technology Corporation* ..... 200,000 2,018,750
Primark Corporation* ................... 25,000 762,500
SCB Computer Technology, Inc.* ......... 225,000 1,715,625
Shared Medical Systems Corporation ..... 100,000 5,318,750
Xylan Corporation* ..................... 200,000 2,662,500
Total ................................. 46,484,375
Communication - 8.10%
COLT Telecom Group plc, ADR* ........... 240,000 8,100,000
Intermedia Communications of
Florida, Inc.* ........................ 150,000 3,679,688
Paging Network, Inc.* .................. 600,000 3,665,625
RCN Corporation* ....................... 300,000 3,918,750
Western Wireless Corporation, Class A* . 300,000 5,381,250
Total ................................. 24,745,313
Educational Services - 1.31%
ITT Educational Services, Inc.* ........ 125,000 4,000,000
Electric, Gas and Sanitary Services - 1.84%
Superior Services, Inc.* ............... 200,000 5,618,750
Engineering and Management Services - 4.11%
Incyte Pharmaceuticals, Inc.* .......... 260,000 5,492,500
MAXIMUS, Inc.* ......................... 150,000 4,575,000
Transition Systems, Inc.* .............. 300,000 2,493,750
Total ................................. 12,561,250
Food and Kindred Products - 2.52%
American Italian Pasta Company,
Class A* .............................. 151,000 3,963,750
Tootsie Roll Industries, Inc. .......... 106,090 3,739,672
Total ................................. 7,703,422
Furniture and Home Furnishings Stores - 1.38%
Williams-Sonoma, Inc.* ................ 197,500 4,209,219
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS (Continued)
Health Services - 3.66%
American Healthcorp, Inc.* ............. 222,000 $ 1,810,687
Amsurg Corp., Class B .................. 536,809 3,388,607
Concentra Managed Care, Inc.* .......... 347,600 2,726,487
Quorum Health Group, Inc.* ............. 200,000 3,250,000
Total ................................. 11,175,781
Hotels and Other Lodging Places - 0.82%
Vail Resorts, Inc.* .................... 125,500 2,502,156
Industrial Machinery and Equipment - 0.65%
Tractor Supply Company* ................ 100,000 1,978,125
Instruments and Related Products - 3.36%
Lunar Corporation* ..................... 200,000 2,150,000
Maxxim Medical, Inc.* .................. 150,000 3,853,125
STERIS Corporation* .................... 150,000 4,242,188
Total ................................. 10,245,313
Miscellaneous Manufacturing Industries - 2.93%
Blyth Industries, Inc.* ................ 200,000 5,487,500
Tiffany & Co. .......................... 110,000 3,451,250
Total ................................. 8,938,750
Miscellaneous Retail - 1.31%
MSC Industrial Direct Co., Inc.* ....... 200,000 4,000,000
Paper and Allied Products - 0.71%
IVEX Packaging Corporation* ............ 150,000 2,175,000
Personal Services - 1.63%
Block (H&R), Inc. ...................... 120,000 4,965,000
Prepackaged Software - 12.69%
BMC Software, Inc.* .................... 150,000 9,004,688
Cerner Corporation* .................... 250,000 6,679,687
Citrix Systems, Inc.* .................. 65,000 4,623,125
Dendrite International, Inc.* .......... 300,000 7,125,000
Intuit Inc.* ........................... 175,000 8,137,500
Learning Company, Inc. (The)* .......... 160,000 3,170,000
Total ................................. 38,740,000
Railroad Transportation - 1.15%
Kansas City Southern Industries, Inc. .. 100,000 3,500,000
Real Estate - 1.32%
Stewart Enterprises, Inc., Class A ..... 240,000 4,020,000
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS (Continued)
Stone, Clay and Glass Products - 2.80%
Department 56, Inc.* ................... 150,000 $ 4,050,000
Gentex Corporation* .................... 300,000 4,500,000
Total ................................. 8,550,000
Wholesale Trade - Durable Goods - 1.15%
OmniCare, Inc. ......................... 100,000 3,525,000
Wholesale Trade - Nondurable Goods - 0.86%
NCS Healthcare, Inc., Class A* ......... 150,000 2,634,375
TOTAL COMMON STOCKS - 72.24% $220,580,579
(Cost: $175,442,787)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 1.64%
du Pont (E.I.) de Nemours and Company,
5.5%, 10-8-98 ......................... $5,000 4,994,653
Communication - 0.65%
Dominion Resources, Inc.,
5.67%, 10-20-98 ....................... 2,000 1,994,015
Electric, Gas and Sanitary Services - 2.54%
Northern Illinois Gas Company:
5.5%, 10-9-98 ......................... 2,000 1,997,555
5.51%, 10-9-98 ........................ 1,400 1,398,286
Western Resources, Inc.,
5.67%, 10-16-98 ....................... 4,380 4,369,652
Total ................................. 7,765,493
Engineering and Management Services - 2.94%
Halliburton Co.,
5.52%, 10-16-98 ....................... 9,000 8,979,300
Fabricated Metal Products - 0.15%
Danaher Corporation,
5.3438%, Master Note .................. 450 450,000
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Food and Kindred Products - 7.26%
Anheuser-Busch,
5.5%, 10-19-98 ........................ $ 1,400 $ 1,396,150
General Mills, Inc.,
5.1988%, Master Note .................. 6,808 6,808,000
Seagram (Joseph E.) & Sons Inc.,
5.4%, 10-15-98 ........................ 14,000 13,970,600
Total ................................. 22,174,750
Food Stores - 3.60%
Albertson's Inc.,
5.52%, 10-2-98 ........................ 11,000 10,998,313
General Merchandise Stores - 0.46%
May Department Stores Co.,
5.5%, 10-26-98 ........................ 1,400 1,394,653
Nondepository Institutions - 1.79%
Island Finance Puerto Rico Inc.,
5.46%, 10-28-98 ....................... 5,500 5,477,478
Security and Commodity Brokers - 1.84%
Merrill Lynch & Co., Inc.,
5.52%, 10-14-98 ....................... 5,640 5,628,758
Textile Mill Products - 0.18%
Sara Lee Corporation,
5.1938%, Master Note .................. 539 539,000
Transportation Equipment - 3.27%
Echlin Inc.,
5.7%, 10-19-98 ........................ 10,000 9,971,500
Total Commercial Paper - 26.32% 80,367,913
Commercial Paper (backed by irrevocable bank
letter of credit) - 0.69%
Depository Institutions
Western Financial Bank FSB (Federal Home
Loan Bank of San Francisco),
5.55%, 10-2-98 ........................ 2,100 2,099,676
TOTAL SHORT-TERM SECURITIES - 27.01% $82,467,589
(Cost: $82,467,589)
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1998
Value
TOTAL INVESTMENT SECURITIES - 99.25% $303,048,168
(Cost: $257,910,376)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.75% 2,301,572
NET ASSETS - 100.00% $305,349,740
See Notes to Schedules of Investments on page 59.
<PAGE>
SHAREHOLDER SUMMARY
- ------------------------------------------------------------------------
SCIENCE AND TECHNOLOGY FUND
PORTFOLIO STRATEGY:
Technology-related OBJECTIVE: Long-term capital growth.
stocks
Generally at least 80% STRATEGY: Invests in common
in science or technology stocks of companies whose
securities; may have more products, processes or services
than 20% in debt securities. are expected to benefit from scientific
or technological discoveries or
developments.
Cash Reserves The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Science and
Technology Fund from time to time. For
more information about the Fund's cash
reserves flexibility, please consult the
Prospectus.
FOUNDED: 1997
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (DECEMBER)
<PAGE>
PERFORMANCE SUMMARY -- Class B Shares
PER SHARE DATA
For the Six Months Ended September 30, 1998
- --------------------------------------
NET ASSET VALUE ON
9/30/98 $11.48
3/31/98 12.01
------
CHANGE PER SHARE $(0.53)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-98 7.60% 10.60%
Period from 7-31-97*
through 9-30-98 10.03% 12.55%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of the period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of the period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1998, Science and Technology Fund had net assets totaling
$14,985,703 invested in a diversified portfolio of:
65.05% Common Stocks
34.95% Cash and Cash Equivalents
As a shareholder of Science and Technology Fund, for every $100 you had invested
on September 30, 1998, your Fund owned:
$34.95 Cash and Cash Equivalents
34.91 Services Stocks
15.92 Manufacturing Stocks
9.91 Transportation, Communication, Electric, Gas
and Sanitary Services Stocks
4.31 Wholesale and Retail Trade Stocks
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS
Building Materials and Garden Supplies - 0.83%
Fastenal Company ....................... 5,000 $ 124,375
Business Services - 16.88%
America Online, Inc.* .................. 3,200 356,000
At Home Corporation, Series A* ......... 5,000 239,219
Fiserv, Inc.* .......................... 6,000 276,563
IDX Systems Corporation* ............... 3,000 158,156
Macromedia, Inc.* ...................... 10,000 162,188
MemberWorks Incorporated* .............. 8,600 132,762
Parametric Technology Corporation* ..... 12,000 121,125
Snyder Communications, Inc.* ........... 3,000 100,500
TMP Worldwide Inc.* .................... 8,000 262,250
Wind River Systems, Inc.* .............. 7,000 331,625
Yahoo! Inc.* ........................... 3,000 388,406
Total ................................. 2,528,794
Communication - 9.91%
broadcast.com inc.* .................... 3,300 133,753
Clear Channel Communications, Inc.* .... 5,000 237,500
COLT Telecom Group plc, ADR* ........... 8,000 270,000
Cox Communications, Inc., Class A* ..... 3,100 169,338
Intermedia Communications of Florida,
Inc.* ................................. 13,000 318,906
MGC Communications, Inc.* .............. 8,000 72,000
MediaOne Group, Inc.* .................. 5,000 222,188
Paging Network, Inc.* .................. 10,000 61,093
Total ................................. 1,484,778
Electronic and Other Electric Equipment - 6.97%
Advanced Fibre Communications, Inc.* ... 13,000 88,969
Ascend Communications, Inc.* ........... 6,000 273,187
Broadcom Corporation, Class A* ......... 4,000 283,500
Concord Communications, Inc.* .......... 5,000 199,375
Tellabs* ............................... 5,000 199,219
Total ................................. 1,044,250
Engineering and Management Services - 4.97%
Incyte Pharmaceuticals, Inc.* .......... 12,000 253,500
Paychex, Inc. .......................... 7,000 360,063
Quintiles Transnational Corp.* ......... 3,000 131,625
Total ................................. 745,188
Food and Kindred Products - 2.64%
American Italian Pasta Company, Class A* 11,000 288,750
J. M. Smucker Company (The), Class A ... 5,000 107,500
Total ................................. 396,250
Furniture and Fixtures - 1.17%
Lear Corporation* ...................... 4,000 175,000
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS (Continued)
Health Services - 0.54%
American Healthcorp, Inc.* ............. 10,000 $ 81,563
Instruments and Related Products - 4.19%
Bionx Implants, Inc.* .................. 10,000 102,500
STERIS Corporation* .................... 7,000 197,969
Uniphase Corporation* .................. 8,000 327,500
Total ................................. 627,969
Prepackaged Software - 12.52%
BMC Software, Inc.* .................... 5,000 300,156
Cerner Corporation* .................... 15,000 400,781
Citrix Systems, Inc.* .................. 4,000 284,500
HNC Software Inc.* ..................... 3,000 121,500
i2 Technologies, Inc.* ................. 8,000 113,000
Intuit Inc.* ........................... 4,000 186,000
Networks Associates, Inc.* ............. 4,000 142,125
Transaction Systems Architects, Inc.,
Class A*............................... 2,500 88,516
Visio Corporation* ..................... 10,000 240,312
Total ................................. 1,876,890
Printing and Publishing - 0.95%
IDG Books Worldwide, Inc., Class A* .... 13,000 142,187
Wholesale Trade -- Durable Goods - 1.41%
OmniCare, Inc. ......................... 6,000 211,500
Wholesale Trade -- Nondurable Goods - 2.07%
Cardinal Health, Inc. .................. 3,000 309,750
TOTAL COMMON STOCKS - 65.05% $9,748,494
(Cost: $9,423,221)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Auto Repair, Services and Parking - 3.99%
PHH Corp.,
5.7%, 10-19-98 ........................ $600 598,290
Chemicals and Allied Products - 3.33%
du Pont (E.I.) de Nemours and Company,
5.5%, 10-8-98 ......................... 500 499,465
Electric, Gas and Sanitary Services - 4.34%
Allegheny Energy Inc.,
5.58%, 10-6-98 ........................ 650 649,496
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Engineering and Management Services - 4.59%
Halliburton Co.,
5.52%, 10-16-98 ....................... $ 690 $ 688,413
Fabricated Metal Products - 4.61%
Danaher Corporation,
5.3438%, Master Note .................. 690 690,000
Food and Kindred Products - 2.78%
General Mills, Inc.,
5.1988%, Master Note .................. 416 416,000
Nondepository Institutions - 8.50%
Island Finance Puerto Rico Inc.,
5.46%, 10-28-98 ....................... 700 697,134
Textron Inc.,
5.65%, 11-3-98 ........................ 580 576,996
Total ................................. 1,274,130
Textile Mill Products - 2.39%
Sara Lee Corporation,
5.1938%, Master Note .................. 358 358,000
TOTAL SHORT-TERM SECURITIES - 34.53% $ 5,173,794
(Cost: $5,173,794)
TOTAL INVESTMENT SECURITIES - 99.58% $14,922,288
(Cost: $14,597,015)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.42% 63,415
NET ASSETS - 100.00% $14,985,703
See Notes to Schedules of Investments on page 59.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
INTERNATIONAL GROWTH FUND
PORTFOLIO STRATEGY:
Normally at least 80% in OBJECTIVE: Long-term appreciation
foreign securities. Not of capital with current
more than 75% in securities income as a secondary
in any one country. consideration.
Maximum of 15% in currency STRATEGY: Invests in securities
exchange contracts. (common or preferred stocks
and/or debt securities) issued
Cash Reserves by companies or governments of any
nation, including the United States.
Securities are selected for their
potential to provide long-term growth.
The Fund provides an opportunity to
invest in foreign companies in many
different industries. International
Growth Fund (formerly Global Income
Fund) changed its name and investment
objective effective April 20, 1995.
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the International
Growth Fund from time to time. For more
information about the Fund's cash
reserves flexibility, please consult the
Prospectus.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months Ended September 30, 1998
- -------------------------------------------
NET ASSET VALUE ON
9/30/98 $13.61
3/31/98 15.04
------
CHANGE PER SHARE $(1.43)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-98 4.58% 7.47%
5-year period ended 9-30-98 11.10% 11.10%
Period from 9-21-92*
through 9-30-98 9.11% 9.11%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and reflects
payment of the applicable contingent deferred sales charge upon redemption at
the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1998, International Growth Fund had net assets totaling
$75,630,917 invested in a diversified portfolio of:
78.03% Common Stocks
14.93% Cash and Cash Equivalents
7.04% Preferred Stocks
As a shareholder of International Growth Fund, for every $100 you had invested
on September 30, 1998, your Fund owned:
$78.03 Common Stocks
14.93 Cash and Cash Equivalents
7.04 Preferred Stocks
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS
Australia - 0.87%
Cultus Petroleum N.L. (A)* ............. 200,000 $ 64,001
Reinsurance Australia Corporation
Limited (A) ........................... 250,000 592,600
Total ................................. 656,601
Brazil - 0.18%
CompanLia de Saneamento Desico do Estado
De Sao Paulo (A)* ..................... 2,200,000 136,769
China - 0.22%
Jinpan International Limited* .......... 57,000 167,438
Denmark - 1.14%
NeuroSearch A/S (A)* ................... 11,500 860,168
Finland - 1.79%
TT Tieto Oy, Class B (A) ............... 42,000 1,354,705
France - 10.07%
AXA-UAP (A) ............................ 10,000 915,238
Accor S.A. (A) ......................... 2,400 503,113
ALTRAN TECHNOLOGIES (A) ................ 5,100 927,173
Etablissements Economiques du Casino
Guichard-Parrachon SA (A) ............ 9,500 957,610
Dassault Systemes S.A. (A) ............. 10,789 408,069
Generale de Geophysique S.A. (A)* ...... 4,500 264,937
Lagardere SCA (A) ...................... 17,500 499,233
Societe Industrielle de Transports
Automobiles S.A. (A) .................. 1,875 411,790
Suez Lyonnaise des Eaux (A) ............ 11,613 1,976,557
VIVENDI (A) ............................ 3,775 751,619
Total ................................. 7,615,339
Germany - 8.44%
Augusta Beteiligungs AG (A)* ........... 12,600 735,629
Bayer Group (A) ........................ 20,500 774,581
K&M Mobel AG (A) ....................... 25,000 236,527
Ludwig Beck am Rathauseck-Textilhaus
Feldmeier AG, Ordinary Bearer
Shares (A)* ........................... 25,000 366,766
Mannesmann AG (A) ...................... 23,000 2,107,186
Rhoen-Klinikum AG (A) .................. 10,773 986,987
Volkswagen AG (A) ...................... 16,300 1,176,138
Total ................................. 6,383,814
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS (Continued)
Italy - 5.42%
Credito Italiano S.p.A. (A) ............ 275,000 $ 1,144,593
Olivetti S.p.A. (A)* ................... 600,000 1,264,980
Seat Pagine Gialle SpA (A)* ............ 1,000,000 733,822
Telecom Italia Mobile S.p.A., Risp (A) . 200,000 955,239
Total ................................. 4,098,634
Japan - 0.71%
Sony Corporation (A) ................... 7,700 534,941
Mexico - 0.33%
Grupo Financiero Banamex Accival,
S.A. de C.V., B, CPO shares (A)* ...... 280,000 247,423
Netherlands - 8.79%
Benckiser N.V., Class B (A) ............ 21,200 1,058,086
Cap Gemini N.V. (A) .................... 15,000 1,010,672
Content Beheer N.V. (A) ................ 28,000 585,749
Fugro N.V. (A) ......................... 42,376 1,334,234
Ordina N.V. (A)* ....................... 56,160 1,550,558
Unique International NV (A) ............ 35,702 1,112,726
Total ................................. 6,652,025
Norway - 1.53%
Blom ASA (A) ........................... 60,000 198,810
Merkantildata ASA (A) .................. 125,000 955,166
Total ................................. 1,153,976
Portugal - 1.45%
Ibersol SGPS SA (A) .................... 5,000 440,310
Portugal Telecom, S.A., ADS ............ 18,300 658,800
Total ................................. 1,099,110
Spain - 5.41%
Abengoa SA (A) ......................... 45,000 869,772
Fabrica Espanola de Productos Quimicos y
Farmaceuticos, S.A. (A) ............... 40,000 611,182
Tele Pizza, S.A. (A)* .................. 217,080 1,452,091
Telefonica de Espana, S.A. (A) ......... 31,727 1,157,202
Total ................................. 4,090,247
Sweden - 3.99%
AB Volvo, B Shares (A) ................. 27,500 673,684
Biacore International AB, ADR* ......... 15,000 111,563
Biora AB (A)* .......................... 40,000 408,293
Ortivus AB, B Shares (A)* .............. 62,500 590,112
Skandia Group Insurance
Company Ltd. (A) ...................... 95,000 1,236,364
Total ................................. 3,020,016
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS (Continued)
Switzerland - 7.23%
Choco Lindt & Spru AG, Registered (A) .. 20 $ 476,913
Julius Baer Holding AG (A) ............. 240 563,625
Novartis, AG (A) ....................... 2,075 3,327,137
Swisslog Holding AG, Registered
Shares (A) ............................ 11,750 1,103,765
Total ................................. 5,471,440
United Kingdom - 19.10%
COLT Telecom Group plc, ADR* ........... 76,800 2,592,000
Computacenter plc (A)* ................. 72,000 609,552
Corporate Services Group plc (A) ....... 225,000 698,063
Energis plc (A)* ....................... 117,100 1,443,257
Freepages Group plc (A)* ............... 1,000,000 442,000
General Electric Company plc (A) ....... 100,000 731,000
JBA Holdings plc (A) .................... 44,000 209,440
Kingfisher plc (A) ..................... 87,500 812,175
Misys plc (A) .......................... 209,740 1,850,536
Orange plc (A)* ........................ 89,500 844,433
PizzaExpress plc (A) ................... 50,000 612,850
Rentokil Initial plc (A) ............... 164,000 1,012,044
Select Appointments (Holdings) Public
Limited Company (A) ................... 59,000 539,614
Vodafone Group Plc (A) ................. 101,095 1,173,814
Williams PLC (A) ....................... 150,000 878,475
Total ................................. 14,449,253
United States - 1.36%
Cellular Communications
International, Inc.* .................. 7,500 411,094
ESG Re Limited ......................... 40,000 615,000
Total ................................. 1,026,094
TOTAL COMMON STOCKS - 78.03% $59,017,993
(Cost: $50,876,329)
PREFERRED STOCKS
Germany - 5.34%
GEA AG (A) ............................. 30,000 844,311
Marschollek, Lautenschlager und
Partner AG (A) ........................ 2,500 1,257,485
Moebel Walther AG (A) .................. 30,000 1,158,683
Porsche AG (A) ......................... 450 781,437
Total ................................. 4,041,916
Portugal - 1.70%
Lusomundo-SGPS, S.A. (A) ............... 100,000 1,283,023
TOTAL PREFERRED STOCKS - 7.04% $ 5,324,939
(Cost: $3,781,275)
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Commercial Paper
Engineering and Management Services - 1.58%
Halliburton Co.,
5.52%, 10-16-98 ....................... $1,200 $ 1,197,240
Fabricated Metal Products - 8.52%
Danaher Corporation,
5.3438%, Master Note .................. 3,448 3,448,000
Snap-On Inc.,
5.51%, 10-15-98 ....................... 3,000 2,993,572
Total ................................. 6,441,572
Food and Kindred Products - 2.72%
Anheuser-Busch,
5.25%, 10-19-98 ....................... 1,000 997,375
ConAgra, Inc.,
5.7%, 10-9-98 ......................... 1,000 998,733
General Mills, Inc.,
5.1988%, Master Note .................. 60 60,000
Total ................................. 2,056,108
Textile Mill Products - 1.53%
Sara Lee Corporation,
5.1938%, Master Note .................. 1,155 1,155,000
Wholesale Trade -- Nondurable Goods - 1.89%
McKesson Corp.,
5.7%, 10-2-98 ......................... 1,430 1,429,774
TOTAL SHORT-TERM SECURITIES - 16.24% $12,279,694
(Cost: $12,279,694)
TOTAL INVESTMENT SECURITIES - 101.31% $76,622,626
(Cost: $66,937,298)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.31%) (991,709)
NET ASSETS - 100.00% $75,630,917
See Notes to Schedules of Investments on page 59.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
ASSET STRATEGY FUND
Stocks 70% OBJECTIVE: To seek high total return
(can range from 0-100%) over the long term.
Bonds 25%
(can range from 0-100%) STRATEGY: Invests in stocks, bonds
and short-term
Short-Term Instruments 5% instruments, both in the
(can range from 0-100%) United States and abroad, which are
allocated in a mix that varies based on
the current outlook for the different
markets.
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Asset Strategy
Fund from time to time. For more
information about the Fund's cash
reserves flexibility, please consult the
Prospectus.
FOUNDED: 1995
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY (March, June, September and
December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months ended September 30, 1998
- -------------------------------------------
DIVIDENDS PAID $0.08
=====
NET ASSET VALUE ON
9/30/98 $11.41
3/31/98 11.42
------
CHANGE PER SHARE $(0.01)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-98 4.46% 7.45%
Period from 4-20-95*
through 9-30-98 7.27% 7.51%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and reflects
payment of the applicable contingent deferred sales charge upon redemption at
the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1998, Asset Strategy Fund had net assets totaling $24,713,261
invested in a diversified portfolio of:
55.15% United States Government Securities
23.24% Common Stocks
19.25% Cash and Cash Equivalents
2.36% Corporate Debt Securities
As a shareholder of Asset Strategy Fund, for every $100 you had invested on
September 30, 1998, your Fund owned:
$55.15United States Government Securities
23.24Common Stocks
19.25Cash and Cash Equivalents
2.36Corporate Debt Securities
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS
Chemicals and Allied Products - 7.07%
Lilly (Eli) and Company ................ 6,500 $ 509,031
Merck & Co., Inc. ...................... 2,000 259,125
Monsanto Company ....................... 8,100 456,638
Warner-Lambert Company ................. 6,900 520,950
Total ................................. 1,745,744
Communication - 3.12%
Cox Communications, Inc., Class A* ..... 4,500 245,813
MediaOne Group, Inc.* .................. 4,800 213,300
SBC Communications Inc. ................ 7,000 311,062
Total ................................. 770,175
Electric, Gas and Sanitary Services - 3.17%
Allied Waste Industries, Inc., New* .... 17,100 400,247
Duke Energy Corp. ...................... 5,800 383,887
Total ................................. 784,134
General Merchandise Stores - 0.84%
Wal-Mart Stores, Inc. .................. 3,800 207,575
Health Services - 1.19%
Quorum Health Group, Inc.* ............. 7,100 115,375
Tenet Healthcare Corporation* .......... 6,200 178,250
Total ................................. 293,625
Instruments and Related Products - 0.98%
Medtronic, Inc. ........................ 4,200 243,075
Metal Mining - 1.63%
Barrick Gold Corporation ............... 7,000 140,000
Homestake Mining Company ............... 10,500 127,313
Newmont Mining Corporation ............. 5,600 135,800
Total ................................. 403,113
Miscellaneous Retail - 0.88%
Costco Companies, Inc.* ................ 4,600 217,925
Motion Pictures - 0.96%
Time Warner Incorporated ............... 2,700 236,419
Nondepository Institutions - 1.66%
Fannie Mae ............................. 6,400 411,200
Prepackaged Software - 0.83%
Cerner Corporation* .................... 7,700 205,734
Real Estate - 0.91%
ElderTrust ............................. 15,400 225,225
TOTAL COMMON STOCKS - 23.24% $ 5,743,944
(Cost: $4,983,945)
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Depository Institutions - 1.11%
Corporacion Andina de Fomento,
6.625%, 10-14-98 (B) .................. $ 275 $ 273,625
Miscellaneous Manufacturing Industries - 1.25%
Tyco International Ltd.,
6.5%, 11-1-2001 ....................... 300 311,043
TOTAL CORPORATE DEBT SECURITIES - 2.36% $ 584,668
(Cost: $572,526)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Banks:
6.38%, 4-29-2003 ...................... 300 300,327
6.2%, 2-27-2004 ....................... 300 300,267
6.225%, 2-27-2004 ..................... 300 301,407
6.57%, 2-11-2005 ...................... 300 301,734
6.305%, 8-25-2005 ..................... 500 502,345
6.245%, 9-22-2005 ..................... 300 301,548
6.02%, 3-30-2006 ...................... 300 300,843
6.75%, 2-5-2008 ....................... 300 301,593
6.75%, 2-12-2008 ...................... 300 301,686
Federal Home Loan Mortgage Corporation,
6.5%, 2-15-2023 ....................... 2,800 408,744
United States Treasury:
7.125%, 2-29-2000 ..................... 60 62,147
5.625%, 12-31-2002 .................... 5,700 5,977,875
7.5%, 2-15-2005 ....................... 60 70,181
6.125%, 8-15-2007 .................... 3,750 4,197,638
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 55.15% $13,628,335
(Cost: $13,307,357)
SHORT-TERM SECURITIES
Commercial Paper
Engineering and Management Services - 4.28%
Halliburton Co.,
5.52%, 10-16-98 ....................... 1,060 1,057,562
Fabricated Metal Products - 0.58%
Danaher Corporation,
5.3438%, Master Note .................. 144 144,000
Food and Kindred Products - 0.87%
General Mills, Inc.,
5.1988%, Master Note .................. 214 214,000
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Nondepository Institutions - 4.03%
Island Finance Puerto Rico Inc.,
5.46%, 10-28-98 ....................... $1,000 $ 995,905
Personal Services - 7.05%
Block Financial Corp.,
5.48%, 10-30-98 ....................... 1,750 1,742,274
TOTAL SHORT-TERM SECURITIES - 16.81% $ 4,153,741
(Cost: $4,153,741)
TOTAL INVESTMENT SECURITIES - 97.56% $24,110,688
(Cost: $23,017,569)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.44% 602,573
NET ASSETS - 100.00% $24,713,261
See Notes to Schedules of Investments on page 59.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
LIMITED-TERM BOND FUND
PORTFOLIO STRATEGY:
OBJECTIVE: High level of current income
Dollar-weighted average consistent with
maturity of portfolio is preservation of capital.
between two and five years.
At least 65% investment-grade
bonds.
STRATEGY: Invests primarily in debt securities of
investment grade, including debt
securities issued or guaranteed by the
U.S. Government or its agencies or
instrumentalities, with the portfolio
having a dollar-weighted average
maturity of not less than two years, but
not more than five years.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months Ended September 30, 1998
- --------------------------------------------
DIVIDENDS PAID $0.22
=====
NET ASSET VALUE ON
9/30/98 $10.29
3/31/98 10.14
------
CHANGE PER SHARE $ 0.15
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-98 3.44% 6.44%
5-year period ended 9-30-98 4.48% 4.48%
Period from 9-21-92*
through 9-30-98 4.69% 4.69%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and reflects
payment of the applicable contingent deferred sales charge upon redemption at
the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1998, Limited-Term Bond Fund had net assets totaling
$18,898,452 invested in a diversified portfolio of:
96.28% Bonds
3.72% Cash and Cash Equivalents
As a shareholder of Limited-Term Bond Fund, for every $100 you had invested on
September 30, 1998, your Fund owned:
$57.96Corporate Bonds
36.18U.S. Government Securities
3.72Cash and Cash Equivalents
2.14Municipal Bond
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Auto Repair, Services and Parking - 2.78%
Hertz Corporation (The),
7.375%, 6-15-2001 ..................... $ 500 $ 524,720
Chemicals and Allied Products - 2.74%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... 500 517,215
Communication - 2.87%
GTE Corporation,
9.375%, 12-1-2000 ..................... 500 542,550
Depository Institutions - 3.25%
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 558 614,129
Electric, Gas and Sanitary Services - 6.54%
UtiliCorp United,
6.875%, 10-1-2004 ..................... 500 526,265
WMX Technologies, Inc.:
8.25%, 11-15-99 ....................... 480 494,779
7.0%, 5-15-2005 ....................... 200 214,230
Total ................................. 1,235,274
Electronic and Other Electric Equipment - 2.81%
Black & Decker Corp.,
7.5%, 4-1-2003 ........................ 500 531,370
Industrial Machinery and Equipment - 2.69%
Tenneco Inc.,
8.2%, 11-15-99 ........................ 500 509,190
Instruments and Related Products - 4.33%
Baxter International Inc.,
8.125%, 11-15-2001 .................... 350 378,123
Polaroid Corporation,
8.0%, 3-15-99 ......................... 435 439,568
Total ................................. 817,691
Insurance Carriers - 2.74%
American General Finance Corporation,
6.2%, 3-15-2003 ....................... 500 518,105
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Nondepository Institutions - 8.20%
Associates Corporation of North America,
8.25%, 12-1-99 ........................ $ 500 $ 517,685
Avco Financial Services, Inc.,
7.375%, 8-15-2001 ..................... 500 527,880
General Motors Acceptance Corporation,
7.75%, 1-15-99 ........................ 500 503,290
Total ................................. 1,548,855
Oil and Gas Extraction - 1.45%
USX Corporation,
9.8%, 7-1-2001 ........................ 250 274,268
Personal Services - 2.69%
Service Corporation International,
6.375%, 10-1-2000...................... 500 508,215
Petroleum and Coal Products - 2.77%
Chevron Corporation Profit Sharing/Savings
Plan Trust Fund,
8.11%, 12-1-2004 ...................... 478 524,307
Railroad Transportation - 2.81%
Union Pacific Corporation,
7.875%, 2-15-2002 ..................... 500 532,060
Security and Commodity Brokers - 2.74%
Salomon Inc.,
7.75%, 5-15-2000....................... 500 517,285
Textile Mill Products - 2.67%
Fruit of the Loom, Inc.,
7.875%, 10-15-99 ...................... 500 505,105
Transportation Equipment - 1.62%
AlliedSignal Inc.,
6.75%, 8-15-2000 ...................... 300 307,017
Wholesale Trade - Durable Goods - 2.26%
Westinghouse Electric Corporation,
8.875%, 6-1-2001 ...................... 400 426,888
TOTAL CORPORATE DEBT SECURITIES - 57.96% $10,954,244
(Cost: $10,659,825)
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BOND - 2.14%
Kansas
Kansas Development Finance Authority,
Health Facilities Revenue Bonds
(Stormont-Vail HealthCare, Inc.),
7.25%, 11-15-2002 ..................... $ 375 $ 404,531
(Cost: $375,000)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.5%, 3-15-2003 ....................... 503 503,622
6.125%, 2-4-2005 ...................... 500 501,560
6.4%, 2-15-2018 ....................... 250 251,405
Federal National Mortgage Association:
6.0%, 11-1-2000 ....................... 236 239,026
7.95%, 3-7-2005 ....................... 500 521,720
6.21%, 8-15-2005 ...................... 500 511,640
7.5%, 11-15-2006 ...................... 500 514,060
8.0%, 2-1-2008 ........................ 157 161,763
6.5%, 12-1-2010 ....................... 555 567,101
6.0%, 1-1-2011 ........................ 414 417,926
6.5%, 2-1-2011 ........................ 481 490,591
7.0%, 5-1-2011 ........................ 347 355,938
7.0%, 7-1-2011 ........................ 378 388,342
7.0%, 9-1-2012 ........................ 428 439,314
7.0%, 9-25-2020 ....................... 10 9,673
7.0%, 4-1-2026 ........................ 410 421,676
Government National Mortgage Association:
6.5%, 10-15-2008 ...................... 183 187,577
7.0%, 7-15-2010 ....................... 344 354,213
TOTAL UNITED STATES GOVERNMENT SECURITIES - 36.18% $ 6,837,147
(Cost: $6,710,477)
TOTAL SHORT-TERM SECURITIES - 1.78% $ 336,000
(Cost: $336,000)
TOTAL INVESTMENT SECURITIES - 98.06% $18,531,922
(Cost: $18,081,302)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.94% 366,530
NET ASSETS - 100.00% $18,898,452
See Notes to Schedules of Investments on pages - .
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
HIGH INCOME FUND
PORTFOLIO STRATEGY:
Invests generally in OBJECTIVE: High level of current
High-Risk, High-Yield income, by investing
Fixed Income Securities. primarily in a
diversified portfolio of
Maximum 20% Common Stock high-yield, high-risk fixed income
securities, with a secondary objective
of capital growth when consistent with
the primary objective.
STRATEGY: Invests generally in debt securities in
lower rating categories as classified by
recognized rating agencies; may also
invest up to 20% in common stocks.
FOUNDED: 1997
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY -- Class B Shares
PER SHARE DATA
For the Six Months Ended September 30, 1998
- -------------------------------------------
DIVIDENDS PAID $0.31
======
NET ASSET VALUE ON
9/30/98 $ 9.73
3/31/98 10.79
------
CHANGE PER SHARE $(1.06)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-98 -0.81% 2.08%
Period from 7-31-97*
through 9-30-98 0.78% 3.27%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and reflects
payment of the applicable contingent deferred sales charge upon redemption at
the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1998, High Income Fund had net assets totaling $19,170,081
invested in a diversified portfolio of:
70.54% Corporate Debt Securities
23.90% Cash and Cash Equivalents
5.56% Common Stocks and Warrants
As a shareholder of High Income Fund, for every $100 you had invested on
September 30, 1998, your Fund owned:
$25.24 Manufacturing Bonds
23.90 Cash and Cash Equivalents
21.75 Transportation, Communication, Electric
and Sanitary Services Bonds
10.82 Services Bonds
10.19 Wholesale and Retail Trade Bonds
5.56 Common Stocks and Warrants
1.24 Contract Construction Bonds
0.78 Agriculture, Forestry and Fisheries Bonds
0.52 Finance, Insurance and Real Estate Bonds
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS AND WARRANTS
Communication - 0.12%
Concentric Network Corporation,
Warrants (B)* ......................... 250 $ 22,500
Food and Kindred Products - 0.54%
Keebler Foods Company* ................. 4,000 104,000
General Merchandise Stores - 1.01%
Fred Meyer, Inc.* ...................... 5,000 194,375
Instruments and Related Products - 2.68%
Maxxim Medical, Inc.* .................. 20,000 513,750
Miscellaneous Retail - 1.20%
Duane Reade Holding Corp.* ............. 3,900 147,956
Finlay Enterprises, Inc.* .............. 10,000 82,500
Total ................................. 230,456
Paper and Allied Products - 0.01%
SF Holdings Group, Inc., Class C (B)* .. 500 1,000
TOTAL COMMON STOCKS AND WARRANTS - 5.56% $ 1,066,081
(Cost: $1,136,958)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.78%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 .................... $100 98,000
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................. 49 52,001
Total ............................... 150,001
Amusement and Recreation Services - 2.45%
Premier Parks Inc.,
0.0%, 4-1-2008 (C) .................. 750 470,625
Apparel and Other Textile Products - 1.30%
Pillowtex Corporation,
9.0%, 12-15-2007 .................... 250 248,750
Auto Repair, Services and Parking - 1.26%
Safelite Glass Corp.,
9.875%, 12-15-2006 (B) .............. 250 241,250
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Building Materials and Garden Supplies - 2.41%
Henry Company,
10.0%, 4-15-2008 (B) ................ $250 $ 240,312
JTM Industries, Inc.,
10.0%, 4-15-2008 (B) ................ 220 221,650
Total ............................... 461,962
Business Services - 1.98%
Lamar Advertising Company:
9.625%, 12-1-2006 ................... 25 26,500
8.625%, 9-15-2007 ................... 250 256,875
Rental Service Corporation,
9.0%, 5-15-2008 ..................... 100 96,000
Total ............................... 379,375
Chemicals and Allied Products - 1.51%
Aqua-Chem, Inc.,
11.25%, 7-1-2008 (B) ................ 250 241,250
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 .................. 50 47,750
Total ............................... 289,000
Communication - 20.07%
ACME Television, LLC,
0.0%, 9-30-2004 (C) ................. 100 77,500
Concentric Network Corporation,
12.75%, 12-15-2007 .................. 250 231,250
Crown Castle International Corp.,
0.0%, 11-15-2007 (C) ................ 200 122,500
Hyperion Telecommunications, Inc.,
0.0%, 4-15-2003 (C) ................. 250 172,500
ICG Services, Inc.,
0.0%, 5-1-2008 (C) .................. 100 46,000
ITC /\ DeltaCom, Inc.,
8.875%, 3-1-2008 .................... 100 98,000
IXC Communications, Inc.,
9.0%, 4-15-2008 ..................... 250 247,500
Intermedia Communications Inc.,
8.5%, 1-15-2008 ..................... 250 246,250
Iridium LLC,
13.0%, 7-15-2005 .................... 100 88,000
Iridium LLC and Iridium Capital
Corporation:
10.875%, 7-15-2005 .................. 100 80,000
11.25%, 7-15-2005 ................... 100 82,000
LIN Holdings Corp.,
0.0%, 3-1-2008 (B)(C) ............... 250 163,750
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
Marcus Cable Co.,
0.0%, 12-15-2005 (C) ................ $250 $ 232,500
MetroNet Communications Corp.,
0.0%, 6-15-2008 (B)(C) .............. 500 276,250
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (C) .................. 100 71,000
Nextel Communications, Inc.:
0.0%, 8-15-2004 (C) ................. 500 480,000
0.0%, 2-15-2008 (C) ................. 100 59,000
NEXTLINK Communications, Inc.,
9.625%, 10-1-2007 ................... 100 97,750
OnePoint Communications Corp., Units,
14.5%, 6-1-2008 (B)(D) .............. 100 79,000
Qwest Communications International Inc.,
0.0%, 10-15-2007 (C) ................ 250 192,500
Salem Communications Corporation,
9.5%, 10-1-2007 ..................... 75 75,375
Sinclair Broadcast Group Inc.,
10.0%, 9-30-2005 .................... 25 26,125
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (C) ................. 100 84,000
Time Warner Telecom LLC and Time
Warner Telecom Inc.,
9.75%, 7-15-2008 .................... 250 251,250
WinStar Communications, Inc.:
0.0%, 10-15-2005 Convertible (B)(C) . 100 88,500
10.0%, 3-15-2008 (B) ................ 250 180,000
Total ............................... 3,848,500
Eating and Drinking Places - 2.55%
Foodmaker, Inc.,
8.375%, 4-15-2008 ................... 250 242,500
NE Restaurant Company, Inc.,
10.75%, 7-15-2008 (B) ............... 250 245,625
Total ............................... 488,125
Electric, Gas and Sanitary Services - 1.42%
Allied Waste North America, Inc.,
10.25%, 12-1-2006 ................... 250 272,500
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Electronic and Other Electric Equipment - 2.94%
Communications Instruments, Inc.,
10.0%, 9-15-2004 .................... $ 50 $ 50,500
Elgar Holdings, Inc.,
9.875%, 2-1-2008 .................... 250 209,375
Omnipoint Corporation,
11.625%, 8-15-2006 .................. 250 167,500
WESCO International, Inc.,
0.0%, 6-1-2008 (B)(C) ............... 250 136,875
Total ............................... 564,250
Fabricated Metal Products - 2.57%
AXIA Incorporated,
10.75%, 7-15-2008 (B) ............... 250 241,250
Neenah Corporation,
11.125%, 5-1-2007 ................... 250 250,938
Total ............................... 492,188
Food and Kindred Products - 0.26%
Southern Foods Group, L.P.
and SFG Capital Corporation,
9.875%, 9-1-2007 .................... 50 50,375
Health Services - 1.66%
Fountain View, Inc.,
11.25%, 4-15-2008 (B) ............... 100 89,125
Paragon Health Network, Inc.:
0.0%, 11-1-2007 (C) ................. 250 136,250
9.5%, 11-1-2007 ..................... 100 92,000
Total ............................... 317,375
Heavy Construction, Excluding Building - 1.24%
Level 3 Communications, Inc.,
9.125%, 5-1-2008 .................... 250 236,875
Industrial Machinery and Equipment - 1.71%
National Equipment Services, Inc.,
10.0%, 11-30-2004 (B) ............... 250 237,500
Walbro Corporation,
9.875%, 7-15-2005 ................... 100 90,000
Total ............................... 327,500
Instruments and Related Products - 0.68%
Cole National Group, Inc.,
9.875%, 12-31-2006 .................. 125 130,000
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Miscellaneous Manufacturing Industries - 1.70%
AAi.Fostergrant, Inc.,
10.75%, 7-15-2006 (B) ............... $250 $ 236,563
Amscan Holdings, Inc.,
9.875%, 12-15-2007 .................. 100 90,125
Total ............................... 326,688
Miscellaneous Retail - 2.78%
Big 5 Corp.,
10.875%, 11-15-2007 ................. 100 93,000
MTS INCORPORATED,
9.375%, 5-1-2005 (B) ................ 250 222,500
Michaels Stores, Inc.,
10.875%, 6-15-2006 .................. 200 218,000
Total ............................... 533,500
Motion Pictures - 2.20%
AMC Entertainment, Inc.,
9.5%, 3-15-2009 ..................... 100 93,500
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 ................... 250 227,500
Regal Cinemas, Inc.,
9.5%, 6-1-2008 (B) .................. 100 101,000
Total ............................... 422,000
Paper and Allied Products - 3.08%
Buckeye Technologies Inc.,
8.0%, 10-15-2010 .................... 250 238,750
Republic Group Incorporated,
9.5%, 7-15-2008 (B) ................. 250 241,250
SF Holdings Group, Inc.,
0.0%, 3-15-2008 (C) ................. 250 111,250
Total ............................... 591,250
Petroleum and Coal Products - 0.52%
Building Materials Corporation of America,
0.0%, 7-1-2004 (C) .................. 100 99,000
Primary Metal Industries - 1.56%
Weirton Steel Corporation:
11.375%, 7-1-2004 ................... 50 45,000
10.75%, 6-1-2005 .................... 25 21,875
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 ................... 250 232,500
Total ............................... 299,375
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Printing and Publishing - 1.84%
Perry-Judd's Incorporated,
10.625%, 12-15-2007 ................. $250 $ 250,000
TransWestern Publishing Company LLC,
9.625%, 11-15-2007 .................. 100 102,750
Total ............................... 352,750
Real Estate - 0.52%
Delco Remy International, Inc.,
8.625%, 12-15-2007 .................. 100 99,000
Rubber and Miscellaneous Plastics Products - 1.64%
Heafner (J.H.) Company, Inc. (The),
10.0%, 5-15-2008 (B) ................ 100 94,000
Home Products International, Inc.,
9.625%, 5-15-2008 ................... 250 221,250
Total ............................... 315,250
Social Services - 1.27%
La Petite Academy, Inc. and LPA Holding Corp.,
10.0%, 5-15-2008 .................... 250 243,125
Stone, Clay and Glass Products - 1.04%
SIMCALA, Inc.,
9.625%, 4-15-2006 ................... 250 200,000
Textile Mill Products - 2.35%
Galey & Lord, Inc.,
9.125%, 3-1-2008 .................... 250 215,000
Globe Manufacturing Corp.,
10.0%, 8-1-2008 (B) ................. 250 235,000
Total ............................... 450,000
Transportation Equipment - 0.54%
Federal-Mogul Corporation,
7.875%, 7-1-2010 .................... 100 102,721
Trucking and Warehousing - 0.26%
Pierce Leahy Corp.,
9.125%, 7-15-2007 ................... 50 49,500
Wholesale Trade - Durable Goods - 1.28%
Sealy Mattress Company,
9.875%, 12-15-2007 .................. 250 245,000
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Wholesale Trade - Nondurable Goods - 1.17%
Nebraska Book Company, Inc.,
8.75%, 2-15-2008 .................... $250 $ 225,313
TOTAL CORPORATE DEBT SECURITIES - 70.54% $13,523,123
(Cost: $14,502,374)
SHORT-TERM SECURITIES
Commercial Paper
Communication - 3.90%
Dominion Resources, Inc.,
5.67%, 10-20-98 ..................... 750 747,756
Electric, Gas and Sanitary Services - 6.77%
Houston Industries FinanceCo L.P. (Houston
Industries Incorporated, guarantor),
5.68%, 10-15-98 ..................... 500 498,895
Public Service Co. of Colorado,
5.68%, 10-19-98 ..................... 800 797,728
Total ............................... 1,296,623
Fabricated Metal Products - 2.05%
Danaher Corporation,
5.3438%, Master Note ................ 393 393,000
Food and Kindred Products - 0.56%
General Mills, Inc.,
5.1988%, Master Note ................ 108 108,000
Food Stores - 4.17%
Kroger Co. (The),
6.15%, 10-1-98 ...................... 800 800,000
Textile Mill Products - 4.01%
Sara Lee Corporation,
5.1938%, Master Note ................ 768 768,000
TOTAL SHORT-TERM SECURITIES - 21.46% $ 4,113,379
(Cost: $4,113,379)
TOTAL INVESTMENT SECURITIES - 97.56% $18,702,583
(Cost: $19,752,711)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.44% 467,498
NET ASSETS - 100.00% $19,170,081
See Notes to Schedules of Investments on page 59.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
MUNICIPAL BOND FUND
PORTFOLIO STRATEGY:
Minimum 80% OBJECTIVE: Income which is not subject
Municipal Bonds. to Federal income taxation.
(Income may be subject to state
Maximum 5% non-investment and local taxes, and a portion
grade debt securities. may be subject to Federal taxes,
including alternative minimum
Less than 25% of its assets tax.)
in securities of issuers
located in any single state.
STRATEGY: Invests in municipal bonds (debt
securities the interest on which is
generally exempt from Federal income
tax).
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months Ended September 30, 1998
- -------------------------------------------
DIVIDENDS PAID $0.21
=====
NET ASSET VALUE ON
9/30/98 $11.71
3/31/98 11.45
------
CHANGE PER SHARE $0.26
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-98 5.49% 8.49%
5-year period ended 9-30-98 5.54% 5.54%
Period from 9-21-92*
through 9-30-98 7.01% 7.01%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1998, Municipal Bond Fund had net assets totaling $40,092,342
invested in a diversified portfolio.
As a shareholder of Municipal Bond Fund, for every $100 you had invested on
September 30, 1998, your Fund owned:
$18.72 Hospital Revenue Bonds
15.19 Industrial Revenue Bonds
14.92 Lifecare/Nursing Centers Revenue Bonds
10.57 Other Municipal Bonds
9.99 Housing Revenue Bonds
5.44 Special Tax Bonds
4.61 Leasing/Certificates of Participation Bonds
4.27 Transportation Revenue Bonds
4.18 Education Revenue Bonds
3.84 Public Power Revenue Bonds
3.67 Cash and Cash Equivalents
2.52 Resource Recovery Revenue Bonds
2.08 Electric Utility Revenue Bonds
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ALASKA - 2.62%
City of Valdez, Alaska, Marine
Terminal Revenue Refunding Bonds
(BP Pipelines (Alaska) Inc. Project),
Series 1993A,
5.85%, 8-1-2025 ....................... $1,000 $ 1,048,750
ARIZONA - 0.71%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-2013 ........................ 270 284,512
ARKANSAS - 1.10%
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-2013 ....................... 400 439,500
CALIFORNIA - 4.27%
Foothill/Eastern Transportation Corridor
Agency, Toll Road Revenue Bonds, Series
1995A,
0.0%, 1-1-2013 (C) .................... 2,000 1,710,000
COLORADO - 7.65%
Boulder County, Colorado, Hospital Development
Revenue Bonds (Longmont United Hospital
Project), Series 1997,
5.6%, 12-1-2027 ....................... 1,000 1,031,250
Colorado Health Facilities Authority, Hospital
Revenue Bonds (Steamboat Springs Health Care
Association Project), Series 1997,
5.75%, 9-15-2022 ...................... 1,000 1,025,000
Denver Health and Hospital Authority, Healthcare
Revenue Bonds, Series 1998A,
5.375%, 12-1-2018 ..................... 1,000 1,012,500
Total ................................. 3,068,750
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
DISTRICT OF COLUMBIA - 1.62%
District of Columbia, Redevelopment Land
Agency (Washington, D.C.), Sports Arena
Special Tax Revenue Bonds (Series 1996),
5.625%, 11-1-2010 ..................... $ 620 $ 651,000
FLORIDA - 1.96%
Housing Finance Authority of Palm Beach
County, Florida, Multifamily Housing
Revenue Bonds (Windsor Park Apartments
Project), Series 1998A,
5.9%, 6-1-2038 ........................ 750 787,500
INDIANA - 1.04%
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-2016 ....................... 400 416,500
IOWA - 0.90%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-2013 ........................ 340 359,125
KANSAS - 1.84%
The Parks and Recreation Foundation of Johnson
County (Johnson County, Kansas), Lease
Revenue Bonds, Series 1998,
5.25%, 9-1-2018 ....................... 750 737,812
MARYLAND - 3.05%
Montgomery County Revenue Authority
(Maryland), Golf Course System Revenue
Bonds, Series 1996A,
6.125%, 10-1-2022 ..................... 650 706,062
Maryland Health and Higher Educational
Facilities Authority, Project and
Refunding Revenue Bonds, Doctors Community
Hospital Issue, Series 1993,
5.75%, 7-1-2013 ....................... 500 516,875
Total ................................. 1,222,937
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MASSACHUSETTS - 2.52%
Massachusetts Industrial Finance Agency,
Resource Recovery Revenue Refunding Bonds
(Ogden Haverhill Project), Series 1998A,
5.5%, 12-1-2013 ....................... $1,000 $ 1,010,000
MICHIGAN - 5.06%
City of Flint Hospital Building Authority,
Revenue Rental Bonds, Series 1998B (Hurley
Medical Center),
5.375%, 7-1-2018 ...................... 1,000 1,015,000
Michigan Strategic Fund, Limited Obligation
Revenue Bonds (Porter Hills Presbyterian
Village, Inc. Project), Series 1998,
5.375%, 7-1-2028 ...................... 1,000 1,015,000
Total ................................. 2,030,000
MISSOURI - 7.75%
The Industrial Development Authority of the
County of Taney, Missouri, Hospital Revenue
Bonds (The Skaggs Community Hospital
Association), Series 1998,
5.3%, 5-15-2018 ....................... 1,860 1,883,250
Health and Educational Facilities Authority
of the State of Missouri, Educational Facilities
Revenue Bonds (Southwest Baptist University
Project), Series 1998,
5.375%, 10-1-2023 ..................... 700 718,375
City of Fenton, Missouri, Public Facilities
Authority, Leasehold Revenue Bonds,
Series 1997 (City of Fenton, Missouri, Lessee),
5.25%, 1-1-2018 ....................... 500 505,625
Total ................................. 3,107,250
NEBRASKA - 3.90%
Hospital Revenue and Refunding Bonds (Faith
Regional Health Services Project), Series
1998, Issued by Hospital Authority No. 1
of Madison County, Nebraska,
5.35%, 7-1-2018 ....................... 1,000 1,020,000
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, 1993-2
Series A-5A,
6.2%, 6-1-2013 ........................ 500 542,500
Total ................................. 1,562,500
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEVADA - 6.42%
Clark County, Nevada, Industrial Development
Refunding Revenue Bonds (Nevada Power
Company Project), Series 1995B,
5.9%, 10-1-2030 ....................... $1,500 $ 1,541,250
West Wendover Recreation District, Elko
County, Nevada, General Obligation
(Limited Tax), Recreational Facilities
and Refunding Bonds, Series 1996,
6.25%, 12-1-2021 ...................... 950 1,031,938
Total ................................. 2,573,188
NEW JERSEY - 4.12%
New Jersey Economic Development Authority,
Economic Development Refunding Bonds (Preston
Trucking Company, Inc. - 1996 Project),
6.5%, 9-1-2014 ........................ 1,500 1,653,750
NEW MEXICO - 5.44%
City of Albuquerque, New Mexico, Gross
Receipts/Lodgers' Tax Refunding and
Improvement Revenue Bonds, Series 1991B,
0.0%, 7-1-2013 ........................ 4,500 2,182,500
OHIO - 2.30%
City of Moraine, Ohio, Solid Waste
Disposal Revenue Bonds (General Motors
Corporation Project), Series 1994,
6.75%, 7-1-2014 ....................... 750 921,563
OKLAHOMA - 4.77%
Oklahoma Housing Finance Agency, Single
Family Mortgage Revenue Bonds
(Homeownership Loan Program),
1996 Series A,
7.05%, 9-1-2026 ....................... 1,000 1,126,250
Tulsa Public Facilities Authority (Oklahoma):
Recreational Facilities Revenue Bonds,
Series 1985,
6.2%, 11-1-2012 ....................... 500 540,000
Assembly Center Lease Payment Revenue
Bonds, Refunding Series 1985,
6.6%, 7-1-2014 ........................ 200 245,250
Total ................................. 1,911,500
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
PENNSYLVANIA - 4.60%
Montgomery County Industrial Development
Authority, Retirement Community Revenue Bonds
(Adult Communities Total Services, Inc.
Obligated Group), Series 1996B,
5.625%, 11-15-2012 .................... $1,750 $ 1,844,063
TENNESSEE - 7.85%
The Health and Educational Facilities Board
of the Metropolitan Government of Nashville
and Davidson County, Tennessee, Multi-Modal
Interchangeable Rate Health Facility Revenue
Bonds (Richland Place, Inc. Project),
Series 1993,
5.5%, 5-1-2023 ........................ 1,990 2,091,987
Tennessee Housing Development Agency,
Homeownership Program Bonds, Issue T,
7.375%, 7-1-2023 ...................... 1,000 1,056,250
Total ................................. 3,148,237
TEXAS - 4.66%
Texas Department of Housing and Community
Affairs, Single Family Mortgage Revenue
Bonds, Series D (AMT) TEAMS Structure,
5.7%, 9-1-2029 ........................ 1,000 1,036,250
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B,
5.85%, 5-1-2022 ....................... 800 833,000
Total ................................. 1,869,250
UTAH - 5.05%
Tooele County, Utah, Hazardous Waste Treatment
Revenue Bonds (Union Pacific Corporation/
USPCI, Inc. Project), Series A,
5.7%, 11-1-2026 ....................... 2,000 2,025,000
VIRGIN ISLANDS - 2.56%
Virgin Islands Public Finance Authority
Revenue and Refunding Bonds (Virgin
Islands Matching Fund Loan Notes),
Series 1998 A (Senior Lien/Refunding),
5.5%, 10-1-2018 ....................... 1,000 1,025,000
See Notes to Schedules of Investments on page 59.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
WASHINGTON - 2.57%
Housing Authority of the City of Seattle,
Low-Income Housing Assistance Revenue Bonds,
1995 (GNMA Collateralized Mortgage Loan -
Kin On Project),
7.4%, 11-20-2036 ...................... $ 875 $ 1,029,219
TOTAL MUNICIPAL BONDS - 96.33% $38,619,406
(Cost: $36,039,409)
TOTAL SHORT-TERM SECURITIES - 3.01% $ 1,208,000
(Cost: $1,208,000)
TOTAL INVESTMENT SECURITIES - 99.34% $39,827,406
(Cost: $37,247,409)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.66% 264,936
NET ASSETS - 100.00% $40,092,342
See Notes to Schedules of Investments on page 59.
<PAGE>
WADDELL & REED FUNDS, INC.
SEPTEMBER 30, 1998
Notes to Schedules of Investments
* No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration, normally
to qualified institutional buyers. At September 30, 1998, the value of
these securities amounted to $273,625 and $3,836,150 for Asset Strategy
Fund and High Income Fund, respectively or 1.11% and 20.01%,
respectively, of net assets.
(C) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(D) Each Unit of OnePoint Communications Corp. consists of $1,000 principal
amount of 14.5% senior notes due 2008 and one warrant to purchase 0.635
shares of common stock, $0.01 par value of the company.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 4 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(In Thousands Except for Per Share and Share Amounts)
Total Science and
Return Growth Technology
Fund Fund Fund
Assets ------------ ----------- -----
- ------
Investment securities--at
value (Notes 1 and 4).. $443,039 $303,048 $14,922
Cash ................... 6 2 2
Receivables:
Fund shares sold ...... 796 542 99
Investment securities sold 5,052 3,095 ---
Dividends and interest. 249 82 8
Prepaid insurance premium 3 3 ---
-------- -------- -------
Total assets ........ 449,145 306,772 15,031
Liabilities -------- -------- -------
Payable to Fund shareholders 1,735 901 33
Payable for investment
securities purchased .. 1,922 374 ---
Accrued service fee -
Class B (Note 3)....... 98 64 3
Accrued transfer agency and
dividend disbursing (Note 3) 60 58 6
Accrued distribution
fee - Class B (Note 3). 9 6 ---
Dividends payable ...... --- --- ---
Accrued accounting
services fee (Note 3).. 5 4 1
Accrued management fee (Note 3) 9 7 ---
Other .................. 8 8 2
-------- -------- -------
Total liabilities ... 3,846 1,422 45
-------- -------- -------
Total net assets ... $445,299 $305,350 $14,986
Net Assets ======== ======== =======
$0.01 par value capital stock
Capital stock ......... $ 384 $ 233 $ 13
Additional paid-in capital 282,572 203,471 14,732
Accumulated undistributed income (loss):
Accumulated undistributed net
investment income (loss) 518 (1,532) (98)
Accumulated undistributed
net realized gain (loss)
on investments ...... 66,817 58,040 14
Net unrealized appreciation
(depreciation) of
investments ......... 95,008 45,138 325
-------- -------- -------
Net assets applicable to
outstanding units
of capital ......... $445,299 $305,350 $14,986
======== ======== =======
Net asset value, redemption and
offering price per share:
Class B Shares ......... $11.61 $13.12 $11.48
Class Y Shares ......... $11.86 $13.41 $11.51
Capital shares outstanding:
Class B Shares ......... 38,258,088 23,221,625 1,305,537
Class Y Shares ......... 92,025 53,262 199
Capital shares authorized 500,000,000 500,000,000 500,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(In Thousands Except for Per Share and Share Amounts)
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
Assets ------------ ----------- -----
- ------
Investment securities--at
value (Notes 1 and 4).. $76,623 $24,111 $18,532
Cash ................... 29 1 2
Receivables:
Fund shares sold ...... 219 169 112
Investment securities sold 255 300 ---
Dividends and interest. 201 174 310
Prepaid insurance premium 1 --- ---
------- ------- -------
Total assets ........ 77,328 24,755 18,956
Liabilities ------- ------- -------
Payable to Fund shareholders 264 26 39
Payable for investment
securities purchased .. 1,365 --- ---
Accrued service fee -
Class B (Note 3)....... 14 5 3
Accrued transfer agency and
dividend disbursing (Note 3) 22 5 4
Accrued distribution
fee - Class B (Note 3). 2 1 ---
Dividends payable ...... --- --- 9
Accrued accounting
services fee (Note 3).. 3 1 1
Accrued management fee (Note 3) 2 1 ---
Other .................. 25 3 2
------- ------- -------
Total liabilities ... 1,697 42 58
------- ------- -------
Total net assets ... $75,631 $24,713 $18,898
Net Assets ======= ======= =======
$0.01 par value capital stock
Capital stock ......... $ 56 $ 22 $ 18
Additional paid-in capital 60,551 22,995
18,579
Accumulated undistributed income (loss):
Accumulated undistributed net
investment income (loss) (242) 23 ---
Accumulated undistributed
net realized gain (loss)
on investments ...... 5,574 580 (150)
Net unrealized appreciation
(depreciation) of
investments ......... 9,692 1,093 451
------- ------- -------
Net assets applicable to
outstanding units
of capital ......... $75,631 $24,713 $18,898
======= ======= =======
Net asset value, redemption and
offering price per share:
Class B Shares ......... $13.61 $11.41 $10.29
Class Y Shares ......... $13.95 $11.42 $10.29
Capital shares outstanding:
Class B Shares ......... 5,523,577 2,141,292 1,814,108
Class Y Shares ......... 32,848 23,694 21,953
Capital shares authorized 500,000,000 500,000,000 500,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(In Thousands Except for Per Share and Share Amounts)
High Municipal
Income Bond
Fund Fund
Assets ------------ -----------
Investment securities--at
value (Notes 1 and 4).. $18,703 $39,827
Cash ................... 1 3
Receivables:
Fund shares sold ...... 171 188
Investment securities sold 41 ---
Dividends and interest. 320 546
Prepaid insurance premium --- 1
------- -------
Total assets ........ 19,236 40,565
Liabilities ------- -------
Payable to Fund shareholders 43 432
Payable for investment
securities purchased .. --- ---
Accrued service fee -
Class B (Note 3)....... 4 8
Accrued transfer agency and
dividend disbursing (Note 3) 3 5
Accrued distribution
fee - Class B (Note 3). --- 1
Dividends payable ...... 14 21
Accrued accounting
services fee (Note 3).. 1 2
Accrued management fee (Note 3) --- 1
Other .................. 1 3
------- -------
Total liabilities ... 66 473
------- -------
Total net assets ... $19,l70 $40,092
Net Assets ======= =======
$0.01 par value capital stock
Capital stock ......... $ 20 $ 34
Additional paid-in capital 20,390 36,449
Accumulated undistributed income (loss):
Accumulated undistributed net
investment income (loss) --- ---
Accumulated undistributed
net realized gain (loss)
on investments ...... (190) 1,029
Net unrealized appreciation
(depreciation) of
investments ......... (1,050) 2,580
------- -------
Net assets applicable to
outstanding units
of capital ......... $19,170 $40,092
======= =======
Net asset value, redemption and
offering price per share:
Class B Shares ......... $9.73 $11.71
Class Y Shares ......... $--- $---
Capital shares outstanding:
Class B Shares ......... 1,969,397 3,424,740
Class Y Shares ......... --- ---
Capital shares authorized 500,000,000 500,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 1998
(In Thousands) Total Science and
Return Growth Technology
Fund Fund Fund
Investment Income (Loss) ------------ ----------- -----------
Income (Note 1B):
Interest and amortization $ 3,111 $ 1,812 $ 76
Dividends ............. 1,988 142 3
--------- --------- -----
Total income ........ 5,099 1,954 79
--------- --------- -----
Expenses (Notes 2 and 3):
Distribution fees - Class B 1,775 1,244 43
Investment management fee 1,681 1,344 40
Service fee - Class B.. 604 421 14
Transfer agency and dividend
disbursing - Class B 353 339 33
Registration fees ..... 42 36 21
Accounting services fee 30 26 3
Custodian fees ........ 17 10 2
Audit fees ............ 10 9 4
Legal fees ............ 4 3 ---
Amortization of prepaid
registration fees ... --- --- 10
Shareholder servicing fee -
Class Y ............. 1 1 ---
Distribution fees - Class Y 1 1 ---
Other ................. 63 52 7
--------- --------- -----
Total expenses ...... 4,581 3,486 177
--------- --------- -----
Net investment income (loss) 518 (1,532) (98)
--------- --------- -----
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 4)
Realized net gain (loss)
on securities ......... 56,824 38,852 160
Realized net gain (loss) from foreign
currency transactions . --- --- ---
Realized net gain on forward
currency contracts .... --- --- ---
--------- -------- -----
Realized net gain (loss)
on investments ...... 56,824 38,852 160
--------- -------- -----
Unrealized appreciation (depreciation)
in value of securities during the
period ................ (81,295) (64,193) (914)
Unrealized appreciation from
translation of assets and
liabilities in foreign currencies --- --- ---
--------- -------- -----
Unrealized appreciation
(depreciation) ...... (81,295) (64,193) (914)
--------- -------- -----
Net gain (loss) on investments (24,471) (25,341) (754)
--------- -------- -----
Net increase (decrease) in net
assets resulting from
operations ....... $(23,953) $(26,873) $(852)
========= ======== =====
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 1998
(In Thousands) International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
Investment Income (Loss) ------------ ----------- -----------
Income (Note 1B):
Interest and amortization $ 121 $363 $ 586
Dividends ............. 763 48 ---
-------- ---- ----
Total income ........ 884 411 586
-------- ---- ----
Expenses (Notes 2 and 3):
Distribution fees - Class B 338 82 66
Investment management fee 366 89 50
Service fee - Class B.. 108 27 22
Transfer agency and dividend
disbursing - Class B 115 26 23
Registration fees ..... 24 10 16
Accounting services fee 15 5 5
Custodian fees ........ 65 4 2
Audit fees ............ 9 7 7
Legal fees ............ 1 --- ---
Amortization of prepaid
registration fees ... --- --- ---
Shareholder servicing fee -
Class Y ............. --- --- ---
Distribution fees - Class Y 1 --- ---
Other ................. 16 3 3
-------- ---- ----
Total expenses ...... 1,058 253 194
-------- ---- ----
Net investment income (loss) (174) 158 392
-------- ---- ----
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 4)
Realized net gain (loss)
on securities ......... 4,626 --- 5
Realized net gain (loss) from foreign
currency transactions . (68) 1 ---
Realized net gain on forward
currency contracts .... 303 --- ---
-------- ---- ----
Realized net gain (loss)
on investments ...... 4,861 1 5
-------- ---- ----
Unrealized appreciation (depreciation)
in value of securities during the
period ................ (12,041) (66) 268
Unrealized appreciation from
translation of assets and
liabilities in foreign currencies 9 --- ---
-------- ---- ----
Unrealized appreciation
(depreciation) ...... (12,032) (66) 268
-------- ---- ----
Net gain (loss) on investments (7,171) (65) 273
-------- ---- ----
Net increase (decrease) in net
assets resulting from
operations ....... $(7,345) $ 93 $665
======== ==== ====
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 1998
(In Thousands) High Municipal
Income Bond
Fund Fund
Investment Income (Loss) ------------ -----------
Income (Note 1B):
Interest and amortization $ 652 $1,107
Dividends ............. --- ---
-------- ------
Total income ........ 652 1,107
-------- ------
Expenses (Notes 2 and 3):
Distribution fees - Class B 59 149
Investment management fee 51 111
Service fee - Class B.. 20 50
Transfer agency and dividend
disbursing - Class B 18 27
Registration fees ..... 20 16
Accounting services fee 5 10
Custodian fees ........ 2 2
Audit fees ............ 4 7
Legal fees ............ --- ---
Amortization of prepaid
registration fees ... 11 ---
Shareholder servicing fee -
Class Y ............. --- ---
Distribution fees - Class Y --- ---
Other ................. 2 9
-------- ------
Total expenses ...... 192 381
-------- ------
Net investment income (loss) 460 726
-------- ------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 4)
Realized net gain (loss)
on securities ......... (247) 856
Realized net gain (loss) from foreign
currency transactions . --- ---
Realized net gain on forward
currency contracts .... --- ---
-------- ------
Realized net gain (loss)
on investments ...... (247) 856
-------- ------
Unrealized appreciation (depreciation)
in value of securities during the
period ................ (1,556) 19
Unrealized appreciation from
translation of assets and
liabilities in foreign currencies --- ---
-------- ------
Unrealized appreciation
(depreciation) ...... (1,556) 19
-------- ------
Net gain (loss) on investments (1,803) 875
-------- ------
Net increase (decrease) in net
assets resulting from operations $(1,343) $1,601
======== ======
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended SEPTEMBER 30, 1998
(Dollars In Thousands) Total Science and
Return Growth Technology
Fund Fund Fund
------------ ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income
(loss) .............. $ 518 $ (1,532) $ (98)
Realized net gain (loss)
on investments ...... 56,824 38,852 160
Unrealized appreciation
(depreciation) ...... (81,295) (64,193) (914)
-------- -------- -------
Net increase (decrease) in net
assets resulting from operations (23,953) (26,873) (852)
-------- -------- -------
Distributions to shareholders (Note 1E):*
From net investment income:
Class B ............. --- --- ---
Class Y ............. --- --- ---
From realized net gain on
investment transactions:
Class B ............. --- --- ---
Class Y ............. --- --- ---
-------- -------- -------
--- --- ---
-------- -------- -------
Capital share transactions
(Note 6) .............. (4,661) 2,076 8,223
-------- -------- -------
Total increase (decrease) (28,614) (24,797) 7,371
Net Assets
Beginning of period .... 473,913 330,147 7,615
-------- -------- -------
End of period .......... $445,299 $305,350 $14,986
======== ======== =======
Undistributed net
investment income (loss) $518 $(1,532) $(98)
==== ======== ====
*See "Financial Highlights" on pages 68 - 82.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended SEPTEMBER 30, 1998
(Dollars In Thousands) International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
------------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income
(loss) .............. $ (174) $ 158 $ 392
Realized net gain (loss)
on investments ...... 4,861 1 5
Unrealized appreciation
(depreciation) ...... (12,032) (66) 268
------- ------- -------
Net increase (decrease) in net assets
resulting from operations (7,345) 93 665
------- ------- -------
Distributions to shareholders (Note 1E):*
From net investment income:
Class B ............. --- (158) (387)
Class Y ............. --- (3) (5)
From realized net gain on
investment transactions:
Class B ............. --- --- ---
Class Y ............. --- --- ---
------- ------- -------
--- (161) (392)
------- ------- -------
Capital share transactions
(Note 6) .............. (4,484) 5,141 293
------- ------- -------
Total increase (decrease) (11,829) 5,073 566
Net Assets
Beginning of period .... 87,460 19,640 18,332
------- ------- -------
End of period .......... $75,631 $24,713 $18,898
======= ======= =======
Undistributed net
investment income (loss) $(242) $ 23 $---
===== ==== ====
*See "Financial Highlights" on pages 68 - 82.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended SEPTEMBER 30, 1998
(Dollars In Thousands) High Municipal
Income Bond
Fund Fund
------------ -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income
(loss) .............. $ 460 $ 726
Realized net gain (loss)
on investments ...... (247) 856
Unrealized appreciation
(depreciation) ...... (1,556) 19
------- -------
Net increase (decrease) in net assets
resulting from operations (1,343) 1,601
------- -------
Distributions to shareholders (Note 1E):*
From net investment income
Class B ............. (460) (726)
Class Y ............. --- ---
From realized net gain on
investment transactions
Class B ............. --- ---
Class Y ............. --- ---
------- -------
(460) (726)
------- -------
Capital share transactions
(Note 6) .............. 9,161 (806)
------- -------
Total increase (decrease) 7,358 69
Net Assets
Beginning of period .... 11,812 40,023
------- -------
End of period .......... $19,170 $40,092
======= =======
Undistributed net
investment income (loss) $--- $---
==== ====
*See "Financial Highlights" on pages 68 - 82.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
(In Thousands) Total Science and
Return Growth Technology
Fund Fund Fund
------------ ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ (903) $ (2,823) $ (42)
Realized net gain (loss)
on investments ...... 22,549 24,170 (145)
Unrealized appreciation 108,013 106,888 1,239
-------- -------- ------
Net increase in net assets
resulting from operations 129,659 128,235 1,052
-------- -------- ------
Distributions to shareholders (Note 1E):*
From net investment income
Class B ............. --- --- ---
Class Y ............. --- --- ---
From realized net gain on
investment transactions
Class B ............. (14,304) (12,537) ---
Class Y ............. (26) (22) ---
-------- -------- ------
(14,330) (12,559) ---
-------- -------- ------
Capital share transactions
(Note 6) .............. 40,627 16,119 6,563
-------- -------- ------
Total increase ........ 155,956 131,795 7,615
Net Assets
Beginning of period .... 317,957 198,352 ---
-------- -------- ------
End of period .......... $473,913 $330,147 $7,615
======== ======== ======
Undistributed net
investment income (loss) $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 68 - 82.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
(In Thousands) International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ (556) $ 320 $ 825
Realized net gain (loss)
on investments ...... 5,845 1,492 (66)
Unrealized appreciation 16,677 1,660 500
------- ------- -------
Net increase in net assets
resulting from operations 21,966 3,472 1,259
------- ------- -------
Distributions to shareholders (Note 1E):*
From net investment income
Class B ............. --- (318) (818)
Class Y ............. --- (5) (8)
From realized net gain on
investment transactions
Class B ............. (7,173) (681) ---
Class Y ............. (30) (8) ---
------- ------- -------
(7,203) (1,012) (826)
------- ------- -------
Capital share transactions
(Note 6) .............. 21,998 3,666 24
------- ------- -------
Total increase ........ 36,761 6,126 457
Net Assets
Beginning of period .... 50,699 13,514 17,875
------- ------- -------
End of period .......... $87,460 $19,640 $18,332
======= ======= =======
Undistributed net
investment income (loss) $--- $25 $---
==== ======= ====
*See "Financial Highlights" on pages 68 - 82.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
(In Thousands) High Municipal
Income Bond
Fund Fund
------------ -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ 225 $ 1,527
Realized net gain (loss)
on investments ...... 57 422
Unrealized appreciation 506 2,048
------- -------
Net increase in net assets
resulting from operations 788 3,997
------- -------
Distributions to shareholders (Note 1E):*
From net investment income
Class B ............. (225) (1,527)
Class Y ............. --- ---
From realized net gain on
investment transactions
Class B ............. --- ---
Class Y ............. --- ---
------- -------
(225) (1,527)
------- -------
Capital share transactions
(Note 6) .............. 11,249 934
------- -------
Total increase ........ 11,812 3,404
Net Assets
Beginning of period .... --- 36,619
------- -------
End of period .......... $11,812 $40,023
======= =======
Undistributed net
investment income ..... $--- $---
==== ====
*See "Financial Highlights" on pages 68 - 82.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFTOTAL RETURN FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the
six
monthsFor the fiscal year ended March 31,
ended-----------------------------------------
9/30/98 1998 1997 1996 1995 1994
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $12.24 $ 9.09 $8.17 $6.37 $6.00 $5.54
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment income
(loss)........... 0.01 (0.02) (0.01) (0.01) (0.00) (0.01)
Net realized and
unrealized gain (loss)
on investments .. (0.64) 3.56 .98 1.84 0.37 0.47
----- ----- ----- ----- ----- -----
Total from investment
operations ....... (0.63) 3.54 0.97 1.83 0.37 0.46
----- ----- ----- ----- ----- -----
Less distribution
from capital gains (0.00) (0.39) (0.05) (0.03) (0.00) (0.00)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $11.61 $12.24 $9.09 $8.17 $6.37 $6.00
====== ====== ===== ====== ===== =====
Total return ....... -5.15% 39.57% 11.93% 28.75% 6.17% 8.31%
Net assets, end of
period (000
omitted) .........$444,207$472,970$317,453$208,233$104,691$61,735
Ratio of expenses
to average net
assets ........... 1.93%** 1.92% 1.95% 1.99% 2.05% 2.16%
Ratio of net investment income
(loss) to average
net assets ....... 0.22%**-0.23% -0.17% -0.11% -0.04% -0.12%
Portfolio turnover
rate ............. 15.51% 36.94% 26.23% 16.78% 16.60% 17.31%
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFTOTAL RETURN FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the
six For the fiscal year For the
months ended March 31, period from
ended----------------- 12/29/95**
9/30/98 1998 1997 to 3/31/96
----------------------- --------------------
Net asset value,
beginning of
period ........... $12.46 $ 9.18 $8.19 $7.66
------ ------ ----- -----
Income from investment
operations:
Net investment
income........... 0.05 0.05 .02 0.02
Net realized and
unrealized gain (loss)
on investments .. (0.65) 3.62 1.02 0.51
------ ------ ----- -----
Total from investment
operations ....... (0.60) 3.67 1.04 0.53
------ ------ ----- -----
Less distribution from
capital gains .... (0.00) (0.39) (0.05) (0.00)
------ ------ ----- -----
Net asset value,
end of period .... $11.86 $12.46 $9.18 $8.19
====== ====== ===== =====
Total return ....... -4.78% 40.63% 12.69% 6.92%
Net assets, end of
period (000
omitted) .......... $1,092 $943 $504 $87
Ratio of expenses
to average net
assets ........... 1.17%***1.20% 1.18% 0.96%***
Ratio of net investment
income to average
net assets ....... 1.01%***0.50% 0.65% 1.04%***
Portfolio turnover
rate ............. 15.51% 36.94% 26.23% 16.78%***
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFGROWTH FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the
six
monthsFor the fiscal year ended March 31,
ended-----------------------------------------
9/30/98 1998 1997 1996 1995 1994
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $14.29 $ 9.08 $10.50 $ 8.45 $7.04 $5.84
------ ------ ------ ------ ----- -----
Income from investment
operations:
Net investment
income (loss) ... (0.07) (0.13) (0.03) (0.01) 0.00 (0.02)
Net realized and
unrealized gain (loss)
on investments .. (1.10) 5.91 (1.09) 2.25 1.58 1.38
------ ------ ------ ------ ----- -----
Total from investment
operations ....... (1.17) 5.78 (1.12) 2.24 1.58 1.36
------ ------ ------ ------ ----- -----
Less distribution
from capital gains (0.00) (0.57) (0.30) (0.19) (0.17) (0.16)
------ ------ ------ ------ ----- -----
Net asset value,
end of period .... $13.12 $14.29 $ 9.08 $10.50 $8.45 $7.04
====== ====== ====== ====== ====== ======
Total return ....... -8.16% 65.37%-10.97% 26.57% 22.61% 23.16%
Net assets, end of period
(000 omitted) ...$304,636$329,514$198,088$202,557$100,683$43,524
Ratio of expenses
to average net
assets ........... 2.10%** 2.13% 2.12% 2.14% 2.23% 2.34%
Ratio of net investment
income (loss) to average
net assets ....... -0.92%**-1.12% -0.27% -0.25% 0.01% -0.97%
Portfolio turnover
rate .............. 25.92% 33.46% 37.20% 31.84% 56.30% 69.12%
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFGROWTH FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the
six For the fiscal year For the
months ended March 31, period from
ended ----------------- 12/29/95**
9/30/98 1998 1997 to 3/31/96
----------------------- --------------------
Net asset value,
beginning of
period ........... $14.55 $ 9.16 $10.52 $10.11
------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.01) (0.03) 0.01 0.02
Net realized and
unrealized gain (loss)
on investments .. (1.13) 5.99 (1.07) 0.39
------ ------ ------ ------
Total from investment
operations ....... (1.14) 5.96 (1.06) 0.41
------ ------ ------ ------
Less distribution
from capital gains (0.00) (0.57) (0.30) (0.00)
------ ------ ------ ------
Net asset value,
end of period .... $13.41 $14.55 $ 9.16 $10.52
====== ====== ====== ======
Total return ....... -7.80% 66.78%-10.37% 4.11%
Net assets, end of
period (000
omitted) .......... $714 $633 $264 $1
Ratio of expenses
to average net
assets ........... 1.27%***1.30% 1.17% 1.17%***
Ratio of net investment
income (loss) to average
net assets ....... -0.09%***-0.30% 0.31% 0.78%***
Portfolio turnover
rate ............. 25.92% 33.46% 37.20% 31.84%***
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFSCIENCE AND TECHNOLOGY FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
six period from
months 7/31/97*
ended to
9/30/98 3/31/98
------------ --------------
Net asset value,
beginning of period $12.01 $10.00
------ ------
Income from investment
operations:
Net investment
loss ............ (0.08) (0.07)
Net realized and
unrealized gain (loss)
on investments .. (0.45) 2.08
------ ------
Total from investment
operations ....... (0.53) 2.01
------ ------
Net asset value,
end of period ..... $11.48 $12.01
====== ======
Total return ....... -4.41% 20.10%
Net assets, end of
period (000
omitted) ......... $14,984 $7,615
Ratio of expenses
to average net
assets ............ 3.09%** 3.20%**
Ratio of net investment
loss to average net
assets ............ -1.72%** -1.66%**
Portfolio
turnover rate ..... 28.45% 26.64%
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFSCIENCE AND TECHNOLOGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout the Period:
For the
period from
6/9/98*
to
9/30/98
--------------
Net asset value,
beginning of period $12.20
------
Income from investment
operations:
Net investment
loss ............ (0.01)
Net realized and
unrealized loss
on investments .. (0.68)
------
Total from investment
operations ....... (0.69)
------
Net asset value,
end of period ..... $11.51
======
Total return ....... -4.16%
Net assets, end of
period (000
omitted) ......... $2
Ratio of expenses
to average net
assets ............ 1.83%**
Ratio of net investment
loss to average net
assets ............ -0.61%**
Portfolio
turnover rate ..... 28.45%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFINTERNATIONAL GROWTH FUND*
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
six
monthsFor the fiscal year ended March 31,
ended-----------------------------------------
9/30/98 1998 1997 1996 1995 1994
-------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $15.04 $12.40 $9.94 $9.36 $9.37 $9.68
------ ------ ------ ------ ----- -----
Income from investment
operations:
Net investment
income (loss) ... (0.03) (0.10) (0.03) 0.08 0.36 0.34
Net realized and
unrealized gain (loss)
on investments .. (1.40) 4.12 2.50 0.63 (0.01) (0.31)
------ ------ ------ ------ ----- -----
Total from investment
operations ....... (1.43) 4.02 2.47 0.71 0.35 0.03
------ ------ ------ ------ ----- -----
Less distributions:
Declared from net
investment income (0.00) (0.00) (0.01) (0.11) (0.36) (0.26)
From capital gains (0.00) (1.38) (0.00) (0.00) (0.00) (0.00)
In excess of net
investment income (0.00) (0.00) (0.00) (0.02) (0.00) (0.00)
Tax-basis return of
capital.......... (0.00) (0.00) (0.00) (0.00) (0.00) (0.08)
------ ------ ------ ------ ----- -----
Total distributions. (0.00) (1.38) (0.01) (0.13) (0.36) (0.34)
------ ------ ------ ------ ----- -----
Net asset value,
end of period .... $13.61 $15.04 $12.40 $9.94 $9.36 $9.37
====== ====== ====== ====== ===== =====
Total return ....... -9.51% 35.24% 24.85% 7.64% 3.84% 0.33%
Net assets, end of
period (000
omitted) .........$75,173 $87,041$50,472 $20,874$11,188 $10,282
Ratio of expenses
to average net
assets ........... 2.34%** 2.35% 2.46% 2.50% 2.29% 2.24%
Ratio of net investment
income (loss) to average
net assets ....... -0.39%**-0.82% -0.52% 0.63% 3.87% 3.56%
Portfolio turnover
rate ............. 43.60% 105.11% 94.76% 88.55% 13.33% 34.90%
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFINTERNATIONAL GROWTH FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
six fiscal year For the
months ended March 31, period from
ended ----------------- 12/29/95*
9/30/98 1998 1997 to 3/31/96
-------------------------- --------------------
Net asset value,
beginning of
period ........... $15.35 $12.52 $9.95 $9.70
------ ------ ------ ------
Income from investment
operations:
Net investment income 0.03 0.01 0.02 0.02
Net realized and
unrealized gain (loss)
on investments .. (1.43) 4.20 2.56 0.23
------ ------ ------ ------
Total from investment
operations ....... (1.40) 4.21 2.58 0.25
------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.00) (0.00) (0.01) (0.00)
From capital gains (0.00) (1.38) (0.00) (0.00)
------ ------ ------ ------
Total distributions (0.00) (1.38) (0.01) (0.00)
------ ------ ------ ------
Net asset value,
end of period .... $13.95 $15.35 $12.52 $9.95
====== ====== ====== ======
Total return ....... -9.12% 36.45% 25.93% 2.58%
Net assets, end of
period (000
omitted) .......... $458 $419 $227 $7
Ratio of expenses
to average net
assets ........... 1.48%** 1.51% 1.59% 1.84%**
Ratio of net investment
income to average
net assets ....... 0.40%** 0.07% 0.05% 1.07%**
Portfolio turnover
rate ............. 43.60% 105.11% 94.76% 88.55%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFASSET STRATEGY FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the For the period
six fiscal year from
monthsended March 31, 4/20/95*
ended---------------- to
9/30/98 1998 1997 3/31/96
------------------------- ---------
Net asset value,
beginning of period $11.42 $9.73 $10.15 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.08 0.21 0.23 0.16
Net realized and
unrealized gain (loss)
on investments... (0.01) 2.16 (0.30) 0.14
------ ------ ------ ------
Total from investment
operations ........ 0.07 2.37 (0.07) 0.30
------ ------ ------ ------
Less distributions:
From net investment
income........... (0.08) (0.22) (0.21) (0.15)
From capital gains (0.00) (0.46) (0.14) (0.00)
------ ------ ------ ------
Total distributions (0.08) (0.68) (0.35) (0.15)
------ ------ ------ ------
Net asset value,
end of period ..... $11.41 $11.42 $9.73 $10.15
====== ====== ====== ======
Total return ....... 0.62% 24.94% -0.86% 3.00%
Net assets, end of
period (000
omitted) .........$24,443 $19,415$13,398 $13,221
Ratio of expenses
to average net
assets ............ 2.30%** 2.44% 2.52% 2.54%**
Ratio of net investment
income to average net
assets ............ 1.43%** 2.02% 2.21% 2.14%**
Portfolio
turnover rate ..... 97.83% 220.67%109.92% 75.02%
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFASSET STRATEGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
sixFor the fiscal year For the
monthsended March 31, period from
ended---------------- 12/29/95*
9/30/98 1998 1997 to 3/31/96
----------------------- ------------
Net asset value,
beginning of
period ........... $11.43 $9.73 $10.16 $10.23
----- ----- ------ ------
Income from investment
operations:
Net investment
income........... 0.13 0.31 0.27 0.07
Net realized and
unrealized gain (loss)
on investments .. (0.01) 2.16 (0.26) (0.08)
----- ----- ------ ------
Total from investment
operations ....... 0.12 2.47 0.01 (0.01)
----- ----- ------ ------
Less distributions:
From net investment
income .......... (0.13) (0.31) (0.30) (0.06)
From capital gains (0.00) (0.46) (0.14) (0.00)
----- ----- ------ ------
Total distributions (0.13) (0.77) (0.44) (0.06)
----- ----- ------ ------
Net asset value,
end of period .... $11.42 $11.43 $9.73 $10.16
====== ====== ====== ======
Total return ....... 1.04% 26.06% 0.05% -0.25%
Net assets, end of
period (000
omitted) .......... $270 $225 $116 $1
Ratio of expenses
to average net
assets ........... 1.46%** 1.58% 1.61% 1.95%**
Ratio of net investment
income to average
net assets ....... 2.27%** 2.90% 2.97% 2.34%**
Portfolio turnover
rate ............. 97.83% 220.67%109.92% 75.02%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFLIMITED-TERM BOND FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
six
monthsFor the fiscal year ended March 31,
ended-----------------------------------------
9/30/98 1998 1997 1996 1995 1994
-------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $10.14 $9.90 $10.00 $ 9.70 $9.84 $10.06
------ ------ ------ ------ ----- ------
Income from investment
operations:
Net investment
income .......... 0.22 0.45 0.44 0.41 0.39 0.35
Net realized and
unrealized gain
(loss) on
investments ..... 0.15 0.24 (0.09) 0.30 (0.13) (0.20)
------ ------ ------ ------ ----- ------
Total from investment
operations ....... 0.37 0.69 0.35 0.71 0.26 0.15
------ ------ ------ ------ ----- ------
Less distributions:
Declared from net
investment income (0.22) (0.45) (0.44) (0.41) (0.39) (0.35)
From capital gains (0.00) (0.00) (0.01) (0.00) (0.01) (0.02)
------ ------ ------ ------ ----- ------
Total distributions (0.22) (0.45) (0.45) (0.41) (0.40) (0.37)
------ ------ ------ ------ ----- ------
Net asset value,
end of period .... $10.29 $10.14 $9.90 $10.00 $9.70 $ 9.84
====== ====== ====== ====== ===== ======
Total return ....... 3.74% 7.15% 3.52% 7.41% 2.73% 1.41%
Net assets, end of
period (000
omitted) .........$18,672 $18,148$17,770 $23,682$12,419 $11,671
Ratio of expenses
to average net
assets ........... 2.18%* 2.12% 2.07% 2.10% 2.17% 2.14%
Ratio of net investment
income to average
net assets ........ 4.38%* 4.52% 4.40% 4.14% 4.05% 3.41%
Portfolio turnover
rate ............. 17.73% 27.37% 23.05% 22.08% 29.20% 25.90%
*Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFLIMITED-TERM BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
six fiscal year For the
monthsended March 31, period from
ended----------------- 12/29/95*
9/30/98 1998 1997 to 3/31/96
----------------------- ----------
Net asset value,
beginning of
period ........... $10.14 $9.90 $10.00 $10.16
------ ------ ------ ------
Income from investment
operations:
Net investment
income........... 0.27 0.53 0.52 0.11
Net realized and
unrealized gain (loss)
on investments .. 0.15 0.24 (0.09) (0.16)
------ ------ ------ ------
Total from investment
operations ....... 0.42 0.77 0.43 (0.05)
------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.27) (0.53) (0.52) (0.11)
From capital gains (0.00) (0.00) (0.01) (0.00)
------ ------ ------ ------
Total distributions (0.27) (0.53) (0.53) (0.11)
------ ------ ------ ------
Net asset value,
end of period .... $10.29 $10.14 $9.90 $10.00
====== ====== ====== ======
Total return ....... 4.19% 7.91% 4.33% -0.49%
Net assets, end of
period (000
omitted) .......... $226 $184 $105 $1
Ratio of expenses
to average net
assets ........... 1.32%** 1.32% 1.04% 1.18%**
Ratio of net investment
income to average
net assets ....... 5.24%** 5.32% 5.62% 4.70%**
Portfolio turnover
rate ............. 17.73% 27.37% 23.05% 22.08%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFHIGH INCOME FUND
Class B Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the
six period from
months 7/31/97*
ended to
9/30/98 3/31/98
--------- ---------
Net asset value,
beginning of period $10.79 $10.00
------ ------
Income from investment
operations:
Net investment
income .......... 0.31 0.37
Net realized and
unrealized gain (loss)
on investments... (1.06) 0.79
------ ------
Total from investment
operations ........ (0.75) 1.16
------ ------
Less distributions:
Declared from net
investment income (0.31) (0.37)
From capital gains (0.00) (0.00)
------ ------
Total distributions (0.31) (0.37)
------ ------
Net asset value,
end of period ..... $9.73 $10.79
====== ======
Total return ....... -7.11% 11.77%
Net assets, end of
period (000
omitted) .........$19,170 $11,812
Ratio of expenses
to average net
assets ............ 2.45%** 2.52%**
Ratio of net investment
income to average net
assets ............ 5.87%** 5.98%**
Portfolio
turnover rate ..... 30.35% 67.82%
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFMUNICIPAL BOND FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
six
monthsFor the fiscal year ended March 31,
ended-----------------------------------------
9/30/98 1998 1997 1996 1995 1994
-------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $11.45 $10.74 $10.63 $10.30 $10.12 $10.53
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.21 0.44 0.45 0.43 0.44 0.39
Net realized and
unrealized gain
(loss) on
investments ..... 0.26 0.71 0.11 0.33 0.18 (0.28)
------ ------ ------ ------ ------ ------
Total from investment
operations ....... 0.47 1.15 0.56 0.76 0.62 0.11
------ ------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income (0.21) (0.44) (0.45) (0.43) (0.44) (0.39)
From capital gains (0.00) (0.00) (0.00) (0.00) (0.00) (0.13)
------ ------ ------ ------ ------ ------
Total distributions (0.21) (0.44) (0.45) (0.43) (0.44) (0.52)
------ ------ ------ ------ ------ ------
Net asset value,
end of period .... $11.71 $11.45 $10.74 $10.63 $10.30 $10.12
====== ====== ====== ====== ====== ======
Total return ....... 4.16% 10.89% 5.32% 7.48% 6.37% 0.76%
Net assets, end of
period (000
omitted) .........$40,092 $40,023$36,618 $33,869$27,434 $24,960
Ratio of expenses
to average net
assets ........... 1.92%* 1.89% 1.92% 1.93% 1.94% 1.98%
Ratio of net investment
income to average
net assets ....... 3.67%* 3.94% 4.18% 4.05% 4.41% 3.62%
Portfolio turnover
rate ............. 32.27% 27.86% 34.72% 42.02% 56.92% 18.93%
*Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OFMUNICIPAL BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
ForFor the
the fiscal For the
period year period from
ended ended 12/29/95*
6/23/97**3/31/97 to 3/31/96
----------------- ------------
Net asset value,
beginning of
period ........... $10.74 $10.63 $10.94
------ ------ ------
Income from investment
operations:
Net investment
income........... 0.10 0.52 0.12
Net realized and
unrealized gain
(loss) on
investments ..... 0.29 0.11 (0.31)
------ ------ ------
Total from investment
operations ....... 0.39 0.63 (0.19)
------ ------ ------
Less dividends declared from
net investment income (0.10) (0.52) (0.12)
------ ------ ------
Net asset value,
end of period .... $11.03 $10.74 $10.63
====== ====== ======
Total return ....... 3.22% 5.96% -1.80%
Net assets, end of
period (000
omitted) .......... $0 $1 $1
Ratio of expenses
to average net
assets ........... 4.95%***1.28% 1.18%***
Ratio of net investment
income to average
net assets ....... 4.12%***4.83% 4.33%***
Portfolio turnover
rate ............. 27.86%***34.72% 42.02%***
*Commencement of operations.
**All outstanding shares were redeemed on June 23, 1997 at the ending net asset
value shown in the table.
***Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
Note 1 - Significant Accounting Policies
Waddell & Reed Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Corporation issues eight series of capital shares; each series
represents ownership of a separate mutual fund. The assets belonging to each
Fund are held separately by the custodian. The capital shares of each Fund
represent a pro rata beneficial interest in the principal, net income and
realized and unrealized capital gains or losses of its respective investments
and other assets. The following is a summary of significant accounting policies
consistently followed by the Corporation in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a pricing service or dealer in bonds.
Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Stocks which are traded over-the-counter are
priced using the Nasdaq Stock Market, which provides information on bid and
asked prices quoted by major dealers in such stocks. Restricted
securities and securities for which quotations are not readily available
are valued as determined in good faith in accordance with procedures
established by and under the general supervision of the Corporation's Board
of Directors. Short-term debt securities are valued at amortized cost,
which approximates market. Short-term debt securities denominated in
foreign currencies are valued at amortized cost in that currency.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums and post-1984 market discount on the purchase of
bonds are amortized for both financial and tax reporting purposes over the
remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See Note
4 -- Investment Securities Transactions.
C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translation arise from changes in currency exchange rates. The
Corporation combines fluctuations from currency exchange rates and
fluctuations in market value when computing net realized and unrealized
gain or loss from investments.
D. Federal income taxes -- It is the Corporation's policy to distribute all of
its taxable income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code. In addition, the Corporation intends to pay
distributions as required to avoid imposition of excise tax. Accordingly,
provision has not been made for Federal income taxes. See Note 5 --
Federal Income Tax Matters.
E. Dividends and distributions -- Dividends and distributions to shareholders
<PAGE>
are recorded by each Fund on the record date. Net investment income
dividends and capital gains distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are due to differing treatments for items
such as deferral of wash sales and post-October losses, foreign currency
transactions, net operating losses and expiring capital loss carryovers.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Organization
The Corporation was incorporated in Maryland on January 29, 1992 and was
inactive (except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and registration of
shares under the Securities Act of 1933) until September 21, 1992 (the date of
the initial public offering). The original Corporation consisted of five mutual
funds - Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund.
On April 24, 1992, Waddell & Reed, Inc. ("W&R"), the Corporation's
principal distributor and underwriter, purchased for investment 2,000 shares of
each series of the original Corporation at their net asset value of $10.00 per
share.
The Corporation's organizational expenses in the amount of $162,960 were
advanced to the Corporation by W&R and were an obligation to be paid by the
original mutual funds. These expenses were amortized evenly over the 60-month
period following the date of the initial public offering.
Asset Strategy Fund was established in Maryland on January 31, 1995 and was
inactive (except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and registration of
shares under the Securities Act of 1933) until April 20, 1995 (the date of the
initial public offering).
Asset Strategy Fund's organizational expenses in the amount of $759 were
advanced to the Corporation by W&R and are an obligation to be paid by it.
These expenses are being amortized and are payable evenly over 60 months
following the date of the initial public offering. During the period ended
September 30, 1998, Asset Strategy Fund paid $76 in organizational expenses.
Science and Technology Fund and High Income Fund were established in
Maryland and were inactive (except for matters relating to their organization
and registration as investment companies under the Investment Company Act of
1940 and registration of shares under the Securities Act of 1933) until July 31,
1997 (the date of the initial public offering).
Science and Technology Fund and High Income Fund's registration expenses
were advanced to the Corporation by W&R and are an obligation to be paid by it.
These expenses were amortized evenly over the 12 months following the incurrence
of the registration expenses.
NOTE 3 -- Investment Management And Payments To Affiliated Persons
Waddell & Reed Investment Management Company ("WRIMCO"), a wholly owned
subsidiary of W&R, serves as the Corporation's investment manager. WRIMCO
provides advice and supervises investments for which services it is paid a fee
computed on each Fund's net assets as of the close of business each day at the
following annual rates: Total Return Fund - 0.71% of net assets, Growth Fund -
0.81% of net assets, Science and Technology Fund - 0.71% of net assets,
International Growth Fund - 0.81% of net assets, Asset Strategy Fund - 0.81% of
net assets, Limited-Term Bond Fund - 0.56% of net assets, High Income Fund -
<PAGE>
0.66% of net assets and Municipal Bond Fund - 0.56% of net assets. The fee is
accrued and paid daily.
The Corporation has an Accounting Services Agreement with Waddell & Reed
Services Company ("WARSCO"), a wholly owned subsidiary of W&R. Under the
agreement, WARSCO acts as the agent in providing accounting services and
assistance to the Corporation and pricing daily the value of shares of the
Corporation. For these services, each of the Funds pays WARSCO a monthly fee of
one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------ -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class B shares, each Fund pays WARSCO a monthly per account charge for
transfer agency and dividend disbursement services of $1.3125 for each
shareholder account which was in existence at any time during the prior month,
plus $0.30 for each account on which a dividend or distribution of cash or
shares had a record date in that month. For Class Y shares, each Fund pays
WARSCO a monthly fee equal to one-twelfth of .15 of 1% of the average daily net
assets of that Class for the preceding month. Each Fund also reimburses W&R,
WRIMCO and WARSCO for certain out-of-pocket costs.
The Corporation has adopted a 12b-1 plan for both Class B and Class Y
shares. Under the Distribution and Service Plan for the Class B shares, W&R,
principal underwriter and sole distributor of the Corporation's shares, is
compensated in an amount calculated and payable daily up to 1% annually of each
of the Fund's Class B average daily net assets. This fee consists of two
elements: (i) up to 0.75% of the particular Fund's Class B net asset value for
distribution services and distribution expenses including commissions paid by
the Distributor to its sales representatives and managers and (ii) up to 0.25%
of the particular Fund's Class B net asset value may be paid to reimburse the
Distributor for continuing payments made to the Distributor's representatives
and managers, its administrative costs in overseeing these payments, and the
expenses of WARSCO in providing certain personal services to shareholders.
During the period ended September 30, 1998, the Distributor received $3,754,042
in distribution fees and $1,264,662 in service fees. During this same period
W&R paid sales commissions of $2,834,506.
Under a Distribution and Service Plan for Class Y shares adopted by the
Corporation pursuant to Rule 12b-1, with respect to each Fund, the Corporation
pays W&R daily a distribution and/or service fee not to exceed, on an annual
basis, 0.25% of the particular Fund's Class Y net asset value. During the period
ended September 30, 1998, the Distributor received $3,384 in 12b-1 payments on
Class Y shares.
For Class B shares, a contingent deferred sales charge may be assessed
against a shareholder's redemption amount and paid to the Distributor, W&R. The
purpose of the deferred sales charge is to compensate the Distributor for the
costs incurred by the Distributor in connection with the sale of a Fund's
shares. The amount of the deferred sales charge will be the following percent
of the total amount invested during a calendar year to acquire the shares or the
<PAGE>
value of the shares redeemed, whichever is less. Redemption at any time during
the calendar year of investment and the first full calendar year after the
calendar year of investment, 3%; the second full calendar year, 2%; the third
full calendar year, 1%; and thereafter, 0%. All investments made during a
calendar year shall be deemed as a single investment during the calendar year
for purposes of calculating the deferred sales charge. The deferred sales
charge will not be imposed on shares representing payment of dividends or
distributions or on amounts which represent an increase in the value of the
shareholder's account resulting from capital appreciation above the amount paid
for shares purchased during the deferred sales charge period. During the period
ended September 30, 1998, the Distributor received $851,184 in deferred sales
charges.
The Corporation paid Directors' fees of $16,234, which are included in
other expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding company,
and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
NOTE 4 -- Investment Securities Transactions
Investment securities transactions for the period ended September 30, 1998
are summarized as follows:
Total Science and
Return Growth Technology
Fund Fund Fund
----------- ---------- -----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ............... $54,553,776 $67,484,409 $6,480,872
Purchases of U.S. Government
securities ............... --- --- ---
Purchases of short-term
securities ............... 934,758,092 493,255,724 24,145,658
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 162,565,967 97,246,391 2,409,003
Proceeds from maturities
and sales of U.S.
Government securities .... --- --- ---
Proceeds from maturities
and sales of short-term
securities ............... 843,224,391 466,060,542 20,053,000
<PAGE>
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
----------- ---------- -----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ............... $36,426,078 $10,453,694 $2,130,395
Purchases of U.S. Government
securities ............... --- 11,182,324 1,503,792
Purchases of short-term
securities ............... 48,381,844 24,556,191 6,764,280
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 50,164,524 16,081,084 1,608,513
Proceeds from maturities
and sales of U.S.
Government securities .... --- 1,500,000 1,415,105
Proceeds from maturities
and sales of short-term
securities ............... 39,748,857 24,586,921 7,255,334
High Municipal
Income Bond
Fund Fund
----------- ----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ............... $8,414,213 $12,515,416
Purchases of U.S. Government
securities ............... 529,062 ---
Purchases of short-term
securities ............... 14,462,145 15,864,817
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 3,511,867 15,402,985
Proceeds from maturities
and sales of U.S.
Government securities .... 540,000 ---
Proceeds from maturities
and sales of short-term
securities ............... 10,903,190 14,947,405
For Federal income tax purposes, cost of investments owned at September 30,
1998 and the related unrealized appreciation (depreciation) were as follows:
<PAGE>
Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Total Return Fund $348,034,267 $105,050,326 $10,045,357 $95,004,969
Growth Fund 257,910,376 68,226,236 23,088,444 45,137,792
Science and Technology
Fund 14,597,015 1,849,018 1,523,745 325,273
International Growth
Fund 66,937,298 15,570,059 5,884,731 9,685,328
Asset Strategy Fund 23,017,569 1,332,690 239,571 1,093,119
Limited-Term Bond Fund18,081,302 457,514 6,894 450,620
High Income Fund 19,752,711 171,749 1,221,877 (1,050,128)
Municipal Bond Fund 37,333,109 2,494,297 0 2,494,297
NOTE 5 -- Federal Income Tax Matters
For Federal income tax purposes, Total Return Fund, Growth Fund,
International Growth Fund and High Income Fund realized capital gain net income
of $22,548,354, $24,170,150, $6,155,683 and $57,036, respectively, during the
year ended March 31, 1998. For Federal income tax purposes, Asset Strategy Fund
realized capital gain net income of $1,270,152 during the year ended March 31,
1998, which included utilization of the remaining capital loss carryovers of
$224,368. For Federal income tax purposes, Municipal Bond Fund realized capital
gain net income of $321,347 during the year ended March 31, 1998, which included
utilization of the remaining capital loss carryovers of $160,264. For Federal
income tax purposes, Science and Technology Fund realized no net capital gains
or losses for the year ended March 31, 1998, because of the effect of certain
losses deferred into the next fiscal year (see discussion below). For Federal
income tax purposes, Limited-Term Bond Fund realized capital losses of $66,217
during the year ended March 31, 1998, and these losses are available to offset
future realized capital gain net income of the Fund through March 31, 2006. In
addition, the Fund has loss carryovers of $88,346, which are available to offset
future realized capital gain net income through March 31, 2005. A portion of
the capital gain net income of Total Return Fund, Growth Fund, International
Growth Fund and Asset Strategy Fund was paid to shareholders during the year
ended March 31, 1998. Remaining capital gains of these Funds, as well as the
capital gain net income of High Income Fund and Municipal Bond Fund, will be
distributed to shareholders.
Internal Revenue Code regulations permit each Fund to defer into its next
fiscal year net capital losses or net long-term capital losses incurred between
each November 1 and the end of its fiscal year ("post-October losses"). From
November 1, 1997 through March 31, 1998, Science and Technology Fund incurred
net capital losses of $145,612, which have been deferred to the fiscal year
ending March 31, 1999.
NOTE 6 -- Multiclass Operations
Each Fund within the Corporation is authorized to offer two classes of
shares, Class B and Class Y, each of which has equal rights as to assets and
voting privileges with respect to each Fund. Class Y shares are not subject to
a contingent deferred sales charge on redemptions and have separate fee
structures for transfer agency and dividend disbursement services and Rule 12b-1
Service Plan fees. A comprehensive discussion of the terms under which shares
of either class are offered is contained in the Prospectus and the Statement of
Additional Information for the Corporation.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
Transactions in capital stock for the periods ended September 30, 1998 are
summarized below. Dollar amounts are in thousands.
<PAGE>
Total Science and
Return Growth Technology
Fund* Fund* Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 4,520,848 2,894,030 732,497
Class Y ............ 19,521 11,337 199
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ --- --- ---
Class Y ............ --- --- ---
Shares redeemed:
Class B ............ (4,909,774) (2,737,099) (60,968)
Class Y ............ (3,176) (1,593) ---
--------- --------- -------
Increase (decrease) in outstanding
capital shares:
Class B ............ (388,926) 156,931 671,529
Class Y ............ 16,345 9,744 199
--------- --------- -------
Total for Fund .... (372,581) 166,675 671,728
========= ========= =======
Value issued from sale
of shares:
Class B ............ $55,338 $41,452 $8,959
Class Y ............ 244 167 2
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ --- --- ---
Class Y ............ --- --- ---
Value redeemed:
Class B ............ (60,203) (39,519) (738)
Class Y ............ (40) (24) ---
------- ------- ------
Increase (decrease) in outstanding
capital:
Class B ............ (4,865) 1,933 8,221
Class Y ............ 204 143 2
------- ------- ------
Total for Fund .. $(4,661) $ 2,076 $8,223
======= ======= ======
* Share transactions prior to June 27, 1998 have been adjusted to effect
the 100% stock dividend of June 26, 1998.
<PAGE>
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 1,199,200 626,906 446,286
Class Y ............ 6,287 4,888 4,345
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ --- 13,900 36,999
Class Y ............ --- 255 533
Shares redeemed:
Class B ............ (1,463,447) (199,412) (458,822)
Class Y ............ (752) (1,125) (1,054)
--------- ------- -------
Increase (decrease) in outstanding
capital shares:
Class B ............ (264,247) 441,394 24,463
Class Y ............ 5,535 4,018 3,824
--------- ------- -------
Total for Fund .... (258,712) 445,412 28,287
========= ======= =======
Value issued from sale
of shares:
Class B ............ $19,340 $7,254 $4,544
Class Y ............ 103 57 44
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ --- 157 377
Class Y ............ --- 3 5
Value redeemed:
Class B ............ (23,914) (2,317) (4,666)
Class Y ............ (13) (13) (11)
------- ------ ------
Increase (decrease) in outstanding
capital:
Class B ............ (4,574) 5,094 255
Class Y ............ 90 47 38
------- ------ ------
Total for Fund .. $(4,484) $5,141 $ 293
======= ====== ======
<PAGE>
High Municipal
Income Bond
Fund Fund
----------- ------------
Shares issued from sale
of shares:
Class B ............ 1,087,207 458,488
Class Y ............ --- ---
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 43,279 56,189
Class Y ............ --- ---
Shares redeemed:
Class B ............ (255,956) (585,137)
Class Y ............ --- ---
--------- -------
Increase (decrease) in outstanding
capital shares:
Class B ............ 874,530 (70,460)
Class Y ............ --- ---
--------- -------
Total for Fund .... 874,530 (70,460)
========= =======
Value issued from sale
of shares:
Class B ............ $11,315 $5,277
Class Y ............ --- ---
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 446 646
Class Y ............ --- ---
Value redeemed:
Class B ............ (2,600) (6,729)
Class Y ............ --- ---
------- ------
Increase (decrease) in outstanding
capital:
Class B ............ 9,161 (806)
Class Y ............ --- ---
------- ------
Total for Fund .. $ 9,161 $ (806)
======= ======
Transactions in capital stock for the periods ended March 31, 1998 are
summarized below. Dollar amounts are in thousands.
<PAGE>
Total Science and
Return Growth Technology
Fund* Fund* Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 8,798,324 4,436,662 688,314
Class Y ............ 20,534 14,002 ---
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 1,341,224 1,109,352 ---
Class Y ............ 2,410 1,880 ---
Shares redeemed:
Class B ............ (6,423,782) (4,297,390) (54,306)
Class Y ............ (2,200) (1,180) ---
--------- --------- -------
Increase (decrease) in outstanding
capital shares:
Class B ............ 3,715,766 1,248,624 634,008
Class Y ............ 20,744 14,702 ---
--------- --------- -------
Total for Fund .... 3,736,510 1,263,326 634,008
========= ========= =======
Value issued from sale
of shares:
Class B ............ $95,637 $50,812 $7,140
Class Y ............ 226 159 ---
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 14,277 12,519 ---
Class Y ............ 26 21 ---
Value redeemed:
Class B ............ (69,514) (47,378) (577)
Class Y ............ (25) (14) ---
------- ------- ------
Increase (decrease) in outstanding
capital:
Class B ............ 40,400 15,953 6,563
Class Y ............ 227 166 ---
------- ------- ------
Total for Fund .. $40,627 $16,119 $6,563
======= ======= ======
* Share amounts have been adjusted retroactively to reflect the 100% stock
dividend effected June 26, 1998.
<PAGE>
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 2,054,848 605,147 569,831
Class Y ............ 7,435 7,066 7,245
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 597,161 93,471 78,843
Class Y ............ 2,503 1,199 757
Shares redeemed:
Class B ............ (934,627) (375,975) (653,746)
Class Y ............ (758) (524) (491)
--------- ------- -------
Increase (decrease) in outstanding
capital shares:
Class B ............ 1,717,382 322,643 (5,072)
Class Y ............ 9,180 7,741 7,511
--------- ------- -------
Total for Fund .... 1,726,562 330,384 2,439
========= ======= =======
Value issued from sale
of shares:
Class B ............ $27,026 $6,622 $5,744
Class Y ............ 99 75 73
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 7,166 996 795
Class Y ............ 30 13 8
Value redeemed:
Class B ............ (12,313) (4,034) (6,591)
Class Y ............ (10) (6) (5)
------- ------ -------
Increase (decrease) in outstanding
capital:
Class B ............ 21,879 3,584 (52)
Class Y ............ 119 82 76
------- ------ ------
Total for Fund .. $21,998 $3,666 $ 24
======= ====== ======
<PAGE>
High Municipal
Income Bond
Fund Fund
----------- ------------
Shares issued from sale
of shares:
Class B ............ 1,155,007 740,539
Class Y ............ --- ---
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 20,516 122,880
Class Y ............ --- ---
Shares redeemed:
Class B ............ (80,656) (779,193)
Class Y ............ --- (97)
--------- ---------
Increase (decrease) in outstanding
capital shares:
Class B ............ 1,094,867 84,226
Class Y ............ --- (97)
--------- ---------
Total for Fund .... 1,094,867 84,129
========= =========
Value issued from sale
of shares:
Class B ............ $11,880 $8,274
Class Y ............ --- ---
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 215 1,377
Class Y ............ --- ---
Value redeemed:
Class B ............ (846) (8,716)
Class Y ............ --- (1)
------- ------
Increase (decrease) in outstanding
capital:
Class B ............ 11,249 935
Class Y ............ --- (1)
------- ------
Total for Fund .. $11,249 $ 934
======= ======
Note 7 -- Stock Dividend
The Corporation's Board of Directors approved on February 11, 1998 a stock
dividend of 100% on both Waddell and Reed Total Return Fund and Waddell and Reed
Growth Fund effected on June 26, 1998. All share and per share amounts have
been adjusted retroactively to reflect the stock dividend.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Waddell & Reed Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Total Return Fund, Growth Fund, Science and
Technology Fund, International Growth Fund, Asset Strategy Fund, Limited-Term
Bond Fund, High Income Fund and Municipal Bond Fund (collectively the "Funds")
comprising Waddell & Reed Funds, Inc. as of September 30, 1998, and the related
statements of operations for the six-month period then ended and changes in net
assets for the six-month period then ended and the fiscal year ended March 31,
1998, and the financial highlights for the periods presented. These financial
statements and the financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial positions of each of the
respective funds comprising Waddell & Reed Funds, Inc. as of September 30, 1998,
the results of their operations, the changes in their net assets, and the
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
November 6, 1998
<PAGE>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, Menlo Park, California
Linda Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Birmingham, Alabama
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Michael L. Avery, Vice President
Abel Garcia, Vice President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
Thomas A. Mengel, Vice President
Louise D. Rieke, Vice President
Grant P. Sarris, Vice President
Mark G. Seferovich, Vice President
W. Patrick Sterner, Vice President
Russell E. Thompson, Vice President
Daniel J. Vrabac, Vice President
James D. Wineland, Vice President
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by submitting
forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell &
Reed representative or by submitting Internal Revenue Service Form W-4P. Once
made, an election can be revoked by providing written notice to Waddell & Reed,
Inc. If you elect not to have tax withheld you may be required to make payments
of estimated tax. Penalties may be imposed by the IRS if withholding and
estimated tax payments are not adequate.
<PAGE>
WADDELL & REED FUNDS, INC.
Total Return Fund
Growth Fund
Science and Technology Fund
International Growth Fund
Asset Strategy Fund
Limited-Term Bond Fund
High Income Fund
Municipal Bond Fund
- ------------------------------------
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
WRR3000SA(9-98)
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